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DFC Global Corp. , reported operating earnings of 58 cents per share for fiscal fourth quarter 2012, ending June 30, beating the Zacks Consensus Estimate by 3.6% and increasing 26% from the year-ago earnings.

The operating results exclude non-recurring charges, the non-cash interest expense resulting from the adoption of ASC 470-20, and the non-cash amortization associated with the legacy cross-currency interest rate swap agreements.

Including these charges, GAAP net loss was 8 cents per share in the reported quarter, compared with 39 cents earned in the prior-year quarter.

DFC Global continues to deliver strong numbers on the back of solid performances at its core business units. Further, successful diversification of products, geographic expansions and acquisitions augmented the performance.

Fiscal 2012 operating earnings came in at $2.16 per share, 2.9% higher than the Zacks Consensus Estimate and 35.8% higher than the year-ago earnings. Earnings also outperformed management's guidance of $2.08–$2.11.

GAAP net income was $1.16 per share, down 28% year over year.

Operational Update

Total revenue for the quarter jumped 14% year over year to $266.7 million, missing the Zacks Consensus Estimate by 5.5%. Higher consumer lending revenue (shooting 21% year over year) and purchased gold sales revenue (surging 60% year over year) largely aided the upside.

Additionally, pawn service fees and sales increased 24% year over year. However, check cashing revenue declined 8.2% from the year-ago quarter.

Fiscal 2012 top line improved 35% year over year to $1.1 billion.

Operating expenses escalated 18% year over year to $167.9 million, primarily attributable to higher salaries and benefits, provision for loan losses, cost of goods sold of purchased gold and occupancy costs. Fiscal 2012 operating expense shot up 40% year over year to $674.5 million.

The magnitude of increase in revenue more than offset the rise in operating costs, driving operating income to swell 7.6% year over year to $98.8 million in the fourth quarter. DFC Global’s operating profit in fiscal 2102 improved 26% year over year to $387.2 million.

The company also notched adjusted EBITDA of $303.7 million in fiscal 2012, up 32% year over year.

Evaluation of Capital and Balance Sheet

At the end of June 30, 2012, the debt structure of DFC Global consisted of $230.0 million of senior convertible notes due 2017, $44.8 million of U.S. senior convertible notes due 2027 and $120.0 million of U.S. senior convertible notes due 2028.

In addition, DFC Global has $600.0 million of senior unsecured notes, which are not due until December 2016 and $34.7 million (SEK 240.0 million) term loan in Sweden due July 2016.

As of June 30, 2012, DFC Global had drawn $22 million of its $235.0 million global revolving credit facility. The company had drawn £5.3 million of its £6.0 million credit facility in the United Kingdom, and had drawn SEK 50.0 million and EUR 16.3 million of its respective SEK 125.0 million and EUR 18.8 million credit facilities in Scandinavia, to fund pawn pledge books in the U.K. and Scandinavia.

Guidance

The company expects operating earnings between $2.35 and $2.55 per share in 2013.

Peer Comparison

MoneyGram International Inc. (MGI - Analyst Report) reported second-quarter 2012 earnings per share of 23 cents, in line with the Zacks Consensus Estimate. However, the reported earnings soared from the year-ago quarter’s loss of $1.37 a share.

Total revenue for the quarter was $330.1 million, up 6.5% from the year-ago period and was at par with the Zacks Consensus Estimate.

Higher money transfer transaction volumes and higher fee and other revenue drove the top line, while absence of preferred dividend payouts, lower interest expenses helped the bottom line and margins’ expansion. However, these were mostly offset by lower investment income along with higher operating, commissions and tax expenses.

Zacks Rank

We maintain our Neutral recommendation on DFC Global. The quantitative Zacks #3 Rank (short-term Hold rating) for the company indicates no clear directional pressure on the shares over the near term.
 

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