Lender Processing Services Inc. (LPS) reported third-quarter 2010 adjusted earnings per share of 89 cents, in line with the Zacks Consensus Estimate as well as the company’s guidance range of 88 cents to 90 cents. Results were also well ahead of the prior-year quarter’s earnings of 83 cents. Year-over-year improvement in results came on the back of growth in operating income, reduced interest expense and a lower share count.
Adjusted net earnings in the quarter included an adjustment for purchase price amortization of 4 cents per share. On a GAAP basis, earnings per share were 85 cents, up from 78 cents recorded in year-earlier quarter.
However, Lender Processing recorded consolidated revenue of $626 million in the quarter under review, well ahead of the Zacks Consensus Estimate of $613 million. The revenue reflected a 1.1% year over year gain.
The Technology, Data, and Analytics Segment (TD&A)
Third-quarter revenues for the TD&A segment were $196.9 million, up 5.7% year over year. Mortgage processing revenues of $102.4 million fell 0.6% year over year. Other TD&A revenues grew 13.5% year over year to $94.6 million driven by higher Desktop revenues as well as strong growth in Other Software and Services offerings.
Operating income for the segment was $67.4 million, up 8.0% year over year. The increase in the segment’s operating income was driven by higher contributions from Mortgage Processing business, and the desktop business. The gains were partially offset by lower contributions from the Data & Analytics businesses.
Loan Transaction Services (LTS)
Both revenues and operating income from the LTS segment slipped 2.1% and 4.8% year over year to $431.1 million and $96.7 million, respectively. The negative variance in the segment’s revenues was due to a 12.6% drop in revenues from default services, which was hit by a macroeconomic slowdown. However, 21.1% growth in Loan Facilitation Services revenues offset most of the decline. In the reported quarter, loan facilitation and default services recorded revenues of $165.5 million and $265.6 million, respectively.
The decline in the segment’s operating margin resulted from lower contributions from default services, partly offset by higher income from loan facilitation.
Financial Position
At quarter-end, cash balance of the company was $72.5 million while outstanding debt was $1.14 billion.
Outlook
For the fourth quarter, management expects adjusted earnings per share to be within the range of 90 cents to 92 cents.
For full-year 2010, management lowered its adjusted earnings expectation in the range of $3.48 to $3.50 per share from $3.49 to $3.56. For full-year 2010, management decreased its revenue guidance to a range of 3% to 4% from 3% to 6% year over year driven by the stressed outlook on the origination and default markets for the remainder of the year.
Hence, we believe although Lender Processing has a solid market presence, its high debt position and weaknesses in the origination-oriented business are causes for concern.
LENDER PROC SVC (LPS): Free Stock Analysis Report
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