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FactSet (FDS) Beats Q1 Earnings Estimates, Lags Revenues

Zacks Equity Research

FactSet Research Systems Inc. FDS reported mixed first-quarter fiscal 2020 results, wherein earnings topped the Zacks Consensus Estimate but revenues missed the same.

The company reported adjusted earnings per share of $2.58, which surpassed the Zacks Consensus Estimate by 6.6% and increased 9.8% on a year-over-year basis driven by strong operating performance.

So far this year, shares of FactSet have gained 33.7%, significantly underperforming the 45.3% growth of the industry it belongs to.

 

Revenues in Detail

FactSet’s revenues of $366.7 million missed the Zacks Consensus Estimate by 0.2% and increased 4.3% year over year. The uptick was driven by higher sales of analytics, content and technology solutions (CTS) as well as wealth management solutions.

Organic revenues increased 4.2% year over year to $367.9 million. Region-wise, U.S. revenues increased to $231.3 million from $222.2 million in the year-ago quarter. International revenues were $135.3 million compared with $129.4 million in the year-ago quarter.

ASV Plus Professional Services

FactSet’s Annual Subscription Value (ASV) plus professional services of $1.48 billion was flat year over year. Organically, it increased 4.1% year over year. Buy-side and sell-side ASV growth rates were 4% and 4%, respectively. Nearly 83.9% of organic ASV was generated by buy-side clients. The rest were derived from sell-side firms performing functions like mergers and acquisitions advisory work, equity research and capital markets services.

ASV generated from the United States was $907.5 million, up 3.5% from the prior-year quarter’s level. Internationally, ASV was $546.2 million, up 4.8% year over year. FactSet added 119 clients in the reported quarter, taking the total number to 5,574. Annual client retention was 89%. At the end of the quarter, total employee count was 9,681, up 1.1% year over year.

Operating Results

Adjusted operating income came in at $124.7 million, up 12.1% from the year-ago quarter’s figure. Adjusted operating margin increased 240 basis points (bps) to 33.9%. Selling, general and administration expenses increased 4.9% to $88.5 million. Total operating expenses increased 0.9% to $253.5 million.

FactSet Research Systems Inc. Price, Consensus and EPS Surprise

 

FactSet Research Systems Inc. Price, Consensus and EPS Surprise
FactSet Research Systems Inc. Price, Consensus and EPS Surprise

FactSet Research Systems Inc. price-consensus-eps-surprise-chart | FactSet Research Systems Inc. Quote

Balance Sheet and Cash Flow

FactSet exited first-quarter fiscal 2020 with cash and cash equivalents of $336.2 million compared with $359.8 million in the previous quarter. Long-term debt of $574.2 million was flat year over year. In the quarter, the company generated $95.8 million of cash from operating activities and capital expenditure was $26.8 million. Free cash flow was $69 million.

FactSet repurchased 343,000 shares for $84.4 million during the reported quarter. As of Nov 30, 2019, the company had $154.2 million available for share repurchases. A quarterly dividend of $27.3 million was paid out on Dec 19.

Fiscal 2020 Outlook

FactSet reaffirmed its outlook for fiscal 2020. The company expects adjusted EPS between $9.85 and $10.15.

The company expects revenues between $1.49 billion and $1.50 billion. Organic ASV plus professional services for fiscal 2020 is projected to increase in the range of $65-$85 million. Adjusted operating margin of 28.5%-29.5% is expected. The annual effective tax rate is anticipated between 17% and 17.5%.

Zacks Rank & Stocks to Consider

Currently, FactSet carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader Zacks Business Services sector are Cardtronics CATM, Global Payments GPN and Mastercard Inc. MA. While Cardtronics sports a Zacks Rank #1 (Strong Buy), Global Payments and Mastercard carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term expected EPS (three to five years) growth rate for Cardtronics, Global Payments and Mastercard is 4%, 18% and 16%, respectively.

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