DST Systems Inc. (DST) reported earnings of 92 cents per share in the fourth quarter, missing the Zacks Consensus Estimate of 105 cents per share.
Revenue
Total revenues for the quarter were $551.3 million, down 2.3% from $564.3 million in the year-ago quarter. Excluding reimbursements, operating revenues came in at $399.7 million, down 1% from $403.9 million in the year-ago quarter. This decrease was attributable to an $8.1 million decline in Output Solutions and a $1.2 million decline in Investments & Other Income. Excluding $25.5 million of net incremental operating revenues resulting from both the consolidation of Argus and a full quarter revenue contribution from BlueDoor, Financial Services operating revenues decreased $19.0 million or 7% during the fourth quarter of 2009 as compared to the year-ago quarter.
The Financial Services operating revenue decline resulted from a decrease in business volumes of DST Health Solutions professional services, decline in mutual fund shareowner processing service revenues, lower volumes of international professional services and reduced AWD software license revenues. The Output Solutions decline reflects a decrease in revenue per unit which took place as a result of higher relative volumes from clients with lower unit pricing. The Investments & Other Income segment, mainly generating revenue from rental income, declined as a result of lower rental activity.
Operating Results
Total cost and expense for the quarter was $208.3 million, up 12.4% from $185.3 million reported in the year-ago quarter. Consolidated income from operations was $68.8 million, down 31.3% from $100.2 million in the fourth quarter of 2008.
Financial Services operating income decreased $25 million during the quarter from the year-ago period, attributable to an increase in deferred compensation costs of approximately $8.6 million. Other significant factors were the $2.5 million in software impairment and severance costs related to international operations, and $3.3 million of lower software license revenues. Output Solutions operating income decreased approximately $5.5 million during the quarter compared to the year-ago period, primarily from lower revenues and increased depreciation costs from equipment purchased to support new client requirements.
Net income for the quarter was $58.8 million or $1.18 per share versus a net income of $70.6 million or $1.41 per share in the year-ago quarter. Excluding certain non-GAAP items, like financing cost associated with convertible debentures, net gains on securities and other investments, and gain on change in equity interest, adjusted net income for the quarter came in at $45.8 million or $0.92 per share. This compares to an adjusted net income of $51.6 million or $1.03 per share in the year-ago quarter.
During the quarter, total mutual fund shareowner accounts serviced increased by 0.8 million, or 0.7%, from 121.1 million accounts reported in the previous quarter. Registered accounts and subaccounts serviced by the company during the quarter were 109.9 million and 11.2 million, respectively.
Gain on Sale of Security
DST saw a net gain of $21.4 million on securities and other investments in the reported quarter. This consists of net realized gains from sales of available-for-sale securities of $20.4 million, net gains on private equity funds and other investments of $1.5 million, and other than temporary impairments on available-for-sale securities and other investments of $500,000.
Balance Sheet
DST exited the quarter with $106 million in cash and $1.22 billion in debt. During the quarter, the company entered into a privately negotiated exchange agreement, under which it exchanged $257.0 million of the company’s principal outstanding 4.125% Series A senior convertible debentures due 2023 for an equal amount of 4.125% Series C senior convertible debentures due 2023.
For the fiscal year 2010, the Zacks Consensus EPS estimate for DST is $4.02, exceeding the most recent consensus estimate by 2 cents. No analyst has revised their fiscal 2010 estimate in last one week.
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