Dollar Financial Outshines

Dollar Financial Corp.’s (DLLR - Analyst Report) fiscal first-quarter earnings came in at 59 cents per share, substantially ahead of the Zacks Consensus Estimate of 41 cents. This also compares favorably with the earnings of 56 cents in the year-ago quarter.
 
Pro forma earnings for the quarter excludes $9.8 million of non-recurring charges primarily related to a $7.8 million unfavorable mark-to-market adjustment on the company’s term loans and inter-company debt and $1.3 million of litigation settlement charges.

On a GAAP basis, net income was 22 cents per share, compared to 46 cents in the prior-year quarter. Results for the quarter benefited primarily as a result of an increased focus on improving the efficiency and reduced cost structure.
 
Total revenues for the quarter decreased 7.4% year over year to $141.8 million. Consumer lending revenue decreased 3.1% year over year to $79 million and Check cashing revenues decreased 22.1% year over year to $37.8 million. The loan loss provision as a percentage of gross consumer-lending revenue improved to 14.8% from 18.7% in the prior-year quarter. This improvement reflects Dollar Financial’s conservative approach of extending consumer credit in the midst of the weakened economy. Provision for loan losses decreased 23.3% year over year to $11.7 million. Dollar Financial maintains approximately $75 million of excess cash available to fund additional growth and acquisition activities, or alternatively to pay down debt.



Outlook
 
For fiscal 2010, Dollar Financial anticipates earnings of $2.10 to $2.30 per share, excluding one-time charges and the impact of adopting FSP APB14-1. We remain concerned about the risks related to Dollar Financial’s tax strategies, extremely fragmented nature of business and international dependence. However, a solid liquidity position, exposure to a somewhat recession-proof sector and cost containment measures will drive future growth. Thus, we are maintaining our Neutral recommendation on the shares.