Broadridge Financial Solutions Inc. (BR) reported adjusted earnings of 39 cents in the first quarter of 2014, which surpassed the Zacks Consensus Estimate of 20 cents. The reported earnings also more than doubled from 18 cents earned in the year-ago quarter.
Broadridge’s first-quarter revenues increased 10.0% on a year-over-year basis to $454.2 million and came ahead of the Zacks Consensus Estimate of $515.0 million. Revenues were driven by recurring fee revenues, which also include contribution from Net New Business, higher distribution revenues and event-driven fee revenues.
Moreover, revenues from Investor Communication Solutions segment (69% of total revenue) increased 10.8% from the year-ago quarter to $376.2 million. The increase was attributable to higher recurring revenues from new business, higher event-driven fee and distribution revenues.
The Securities Processing Solutions segment (31% of total revenue) reported revenues of $168.7 million, up 9.6% from the year-ago quarter. The increase was driven by strength in new business and higher equity trade volumes per day.
Better-than-expected revenues resulted from Broadridge’s client win for its new post-trade processing solution jointly launched with Accenture (ACN). Apart from this, the company witnessed higher demand for its Fluent digital service, which aims at simplifying communications between financial services firms and their clients.
Broadridge’s total expenses as a percentage of revenues decreased 694 basis points (bps) due to lower expenses. This resulted in a 675 bps expansion in the adjusted pretax margins.
The company reported adjusted net income of $48.1 million or 39 cents, which increased from $22.3 million or 18 cents reported in the year-ago quarter.
Broadridge exited the quarter with cash and cash equivalents of $183.1 million, down from $266 million in the previous quarter. Long-term debt was $524 million compared to $524.5 million in the previous quarter.
During the quarter, Broadridge repurchased 0.3 million shares at $30.10 per share and paid approximately $22 million as dividends.
Fiscal 2014 Guidance
Broadridge reiterated its fiscal 2014 guidance. For fiscal 2014, Broadridge expects revenue growth of 2.0% to 4.0% and recurring revenue growth of 5.0% to 7.0%. The company expects recurring revenues from closed sales to be the key driver of revenue growth. Recurring revenues from closed sales are forecast in the range of $110.0 million to $150.0 million. Client retention rate is expected to be 98.0%.
Non-GAAP margin is expected between 15.6% and 16.1%. Adjusted earnings per share are still expected in the range of $2.00–$2.10. Management also expects adjusted free cash flow within the range of $250.0 million to $300.0 million.
Apart from this, Broadridge is positive over the ramp up of its post-trade processing service and digital communication service, which have strengthened the company’s deal pipeline.
Broadridge’s first-quarter results were impressive as both the top and bottom lines surpassed the Zacks Consensus Estimate. The mutual fund proxy business, which is unpredictable, has done well this quarter and boosted event-driven fee revenues. Also, cost reduction initiatives and solid growth in net new businesses were the quarter’s positive.
We remain optimistic on Broadridge’s strategic acquisitions, product launches, share repurchase program and dividend hike. We also believe that its close association with Accenture will create long-term opportunities for Broadridge. However, significant competition from companies such as Barrett Business Services (BBSI) and DST Systems Inc. (DST) has intensified pricing pressure for the company.
Currently, Broadridge has a Zacks Rank #3 (Hold).