Shares of FactSet Research Systems Inc. (FDS), a leading financial information service provider, fell 12.12% following the company’s fiscal first quarter results announced yesterday. The major decline in the share price was due to the flat second quarter guidance, driven by continued softness in consumer spending and a choppy financial market.
 
While the stated management objective is the increase of earnings per share, the guidance did not reflect this. Moreover, increasing competition from Thomson Reuters Corp. (TRI), RiskMetrics Group, Inc. (RMG), Bloomberg and Dealogic PLC and a challenging environment for investment banks are likely to pressure revenue growth.
 
Earnings
 
The company expects earnings per share in the 73 – 75 cents range, in line with the Zacks Consensus Estimate of 74 cents. FactSet expects revenues in the range of $154 – $158 million for the upcoming quarter. The 2010 guidance for capital expenditures, net of landlord contributions, is between $20 million and $26 million.
 
Earnings for the reported quarter was 74 cents per share, in line with the Zacks Consensus Estimate and one cent above the year-ago level. Operating income improved by 5.3% from the year-ago period on lower cost of sales. The company was successful in increasing the operating margin, which expanded 180 basis points year over year to 34.8%.
 
Revenues
 
Revenues of $155.2 million was flat year over year. Geographically, revenues from the U.S. were $105 million, down 1% from the year-ago quarter. Non-U.S. revenues increased 1% to $50 million.
 
Annual Subscription Value or ASV (revenues for the next 12 months from all annual subscription services offered to clients) increased $2 million to $621 million in the quarter. Of this, 82% was from buy-side clients and the remainder from sell-side firms performing M&A advisory work and equity research. The company exited the quarter with 37,400 users, up 100 users from the last quarter. Client count was 2,044 at quarter-end, a decrease of 1 client. 
 
Operating Performance
 
FactSet generated $25.2 million cash from operating activities and spent $6.54 million on capital expenditure, resulting in a free cash of $18.5 million. The balance sheet remains strong, with $218 million in cash and short-term investments and no long-term debt at quarter-end. The company repurchased 777,400 shares for $52.1 million during the quarter and has $150 million remaining under the current repurchase authorization.
 
We maintain our Neutral rating on the stock as we believe the acquisition of Thomson’s WorldScope database will be accretive to the company’s earnings in 2010.
Read the full analyst report on “FDS”
Read the full analyst report on “TRI”
Read the full analyst report on “RMG”
Zacks Investment Research