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DST Systems (DST) Q3 Earnings & Revenues Beat Estimates
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Shares of DST Systems Inc. surged more than 7%, yesterday, following the company’s better-than-expected third-quarter 2017 results.
The company’s non-GAAP earnings (excluding amortization of intangible assets, restructuring charges and one-time items) of 76 cents per share beat the Zacks Consensus Estimate of 73 cents. However, the company’s non-GAAP earnings registered a year-over-year decrease of 1.3%.
Notably, the stock price underperformed the industry in the past one year. While the industry gained 21.9%, the stock yielded a return of just 20%.
Quarter Details
Total revenues in the third quarter came in at $562.6 million, up 45.5% from the year-ago quarter. Excluding out-of-the-pocket reimbursements, consolidated operating revenues increased 43.6% year over year to $524.8 million, ahead of the Zacks Consensus Estimate of $511 million. The year-over-year increase was primarily due to synergies from Boston Financial Data Services ("BFDS") and International Financial Data Services U.K. ("IFDS U.K.") acquisitions.
In first-quarter 2017, DST changed reportable segment structure, which splits the previously reported Financial Services segment, into two new segments, Domestic Financial Services and International Financial Services. The Healthcare Services segment remains unchanged.
Domestic Financial Services operating revenues (excluding out-of-the-pocket reimbursements) rose 23.4% year over year and came in at $305.3 million. Benefits from businesses acquired from BFDS in 2017 and increased revenues from organic growth along with positive market movement at ALPS positively impacted the segment.
International Financial Services Segment increased from $26.9 million reported in the year-ago quarter to $129.4 million, primarily owing to synergies from IFDS U.K acquisition.
Healthcare Services operating revenues were down 1.8% on a year-over-year basis and came in at $104.2 million, primarily due client migrations.
Total cost and expenses soared 63% from the year-ago quarter to $472.1 million. Also, as a percentage of revenues, costs and expenses increased from 79.2% to 89.9%.
Non-GAAP operating income decreased 1.5% year over year and came in at $72.5 million, primarily due to higher stock compensation expenses. Moreover, operating margin was down from 20.1% reported in the year-ago quarter to 13.8%, primarily due to higher operating expenses as a percentage of revenues.
DST Systems reported non-GAAP net income of $46.5 million compared with $50.7 million reported in the year-ago quarter.
The company exited the quarter with $140.7 million in cash and equivalents compared with $139.1 million in the previous quarter. Long-term debt (including current portion) was $644.8 million compared with $645.4 million in the previous quarter.
During the third quarter, DST Systems repurchased roughly 1.2 million shares worth $75 million. The company has $225 million shares remaining under the current share repurchase program.
Additionally, the Board declared a quarterly cash dividend of 18 cents per share.
Our Take
DST Systems reported stellar third-quarter results. Further, revenues grew year over year, primarily due to BFDS and IFDS acquisitions.
We believe that DST Systems’ business volume and massive scale of operation in Financial Services will attract new customers. Moreover, we expect steady contributions from acquisitions to support revenue growth. Continued share buybacks and dividend payments are the other encouraging factors.
However, persistent decline in registered accounts, ongoing consolidation in the U.S. financial services market and stiff competition from International Business Machines Corporation (IBM - Free Report) and Fiserv Inc. might put its fundamentals under pressure. Moreover, a high debt burden remains a major concern.
Currently, DST Systems carries a Zacks Rank #4 (Sell).
Applied Materials has an expected long-term EPS growth rate of 17.1%.
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DST Systems (DST) Q3 Earnings & Revenues Beat Estimates
Shares of DST Systems Inc. surged more than 7%, yesterday, following the company’s better-than-expected third-quarter 2017 results.
The company’s non-GAAP earnings (excluding amortization of intangible assets, restructuring charges and one-time items) of 76 cents per share beat the Zacks Consensus Estimate of 73 cents. However, the company’s non-GAAP earnings registered a year-over-year decrease of 1.3%.
Notably, the stock price underperformed the industry in the past one year. While the industry gained 21.9%, the stock yielded a return of just 20%.
Quarter Details
Total revenues in the third quarter came in at $562.6 million, up 45.5% from the year-ago quarter. Excluding out-of-the-pocket reimbursements, consolidated operating revenues increased 43.6% year over year to $524.8 million, ahead of the Zacks Consensus Estimate of $511 million. The year-over-year increase was primarily due to synergies from Boston Financial Data Services ("BFDS") and International Financial Data Services U.K. ("IFDS U.K.") acquisitions.
In first-quarter 2017, DST changed reportable segment structure, which splits the previously reported Financial Services segment, into two new segments, Domestic Financial Services and International Financial Services. The Healthcare Services segment remains unchanged.
Domestic Financial Services operating revenues (excluding out-of-the-pocket reimbursements) rose 23.4% year over year and came in at $305.3 million. Benefits from businesses acquired from BFDS in 2017 and increased revenues from organic growth along with positive market movement at ALPS positively impacted the segment.
International Financial Services Segment increased from $26.9 million reported in the year-ago quarter to $129.4 million, primarily owing to synergies from IFDS U.K acquisition.
Healthcare Services operating revenues were down 1.8% on a year-over-year basis and came in at $104.2 million, primarily due client migrations.
Total cost and expenses soared 63% from the year-ago quarter to $472.1 million. Also, as a percentage of revenues, costs and expenses increased from 79.2% to 89.9%.
Non-GAAP operating income decreased 1.5% year over year and came in at $72.5 million, primarily due to higher stock compensation expenses. Moreover, operating margin was down from 20.1% reported in the year-ago quarter to 13.8%, primarily due to higher operating expenses as a percentage of revenues.
DST Systems reported non-GAAP net income of $46.5 million compared with $50.7 million reported in the year-ago quarter.
The company exited the quarter with $140.7 million in cash and equivalents compared with $139.1 million in the previous quarter. Long-term debt (including current portion) was $644.8 million compared with $645.4 million in the previous quarter.
During the third quarter, DST Systems repurchased roughly 1.2 million shares worth $75 million. The company has $225 million shares remaining under the current share repurchase program.
Additionally, the Board declared a quarterly cash dividend of 18 cents per share.
Our Take
DST Systems reported stellar third-quarter results. Further, revenues grew year over year, primarily due to BFDS and IFDS acquisitions.
We believe that DST Systems’ business volume and massive scale of operation in Financial Services will attract new customers. Moreover, we expect steady contributions from acquisitions to support revenue growth. Continued share buybacks and dividend payments are the other encouraging factors.
However, persistent decline in registered accounts, ongoing consolidation in the U.S. financial services market and stiff competition from International Business Machines Corporation (IBM - Free Report) and Fiserv Inc. might put its fundamentals under pressure. Moreover, a high debt burden remains a major concern.
Currently, DST Systems carries a Zacks Rank #4 (Sell).
A better-ranked stock worth considering in the broader technology industry is Applied Materials, Inc. (AMAT - Free Report) , which sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Applied Materials has an expected long-term EPS growth rate of 17.1%.
Will You Make a Fortune on the Shift to Electric Cars?
Here's another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.
With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.
It's not the one you think.
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