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FactSet (FDS) Beats Q2 Earnings Estimates, Lags Revenues

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FactSet Research Systems Inc. (FDS - Free Report) reported mixed second-quarter fiscal 2020 results, with earnings topping the Zacks Consensus Estimate and revenues missing the same.

The company reported adjusted earnings per share (EPS) of $2.55, which surpassed the Zacks Consensus Estimate by 3.2% and increased 5.4% on a year-over-year basis driven by lower tax rate.

So far this year, shares of FactSet have gained 4.2% compared with 4% growth of the industry it belongs to.

Revenues in Detail

FactSet’s revenues of $369.8 million marginally missed the Zacks Consensus Estimate and increased 4.2% 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 $371 million. Region-wise, U.S. revenues increased to $232.7 million from $223.3 million in the year-ago quarter. International revenues were $137.1 million compared with $131.6 million in the year-ago quarter.

ASV Plus Professional Services

FactSet’s Annual Subscription Value (ASV) plus professional services was at $1.5 billion. Organically, it increased 4.3% year over year. Buy-side and sell-side ASV growth rates were 4.5% and 2.9%, respectively. Nearly 84.1% 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 $925.6 million, up 3.9% from the prior-year quarter’s level. Internationally, ASV was $554 million, up 4.5% year over year. FactSet added 87 clients in the reported quarter, taking the total number to 5,688. Annual client retention was 89%. At the end of the quarter, total employee count was 9,892, up 3.8% year over year.

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

 

Operating Results

Adjusted operating income came in at $117.9 million, down slightly from the year-ago quarter’s figure. Adjusted operating margin fell to 31.8% from 33.2% in the year-ago quarter. Selling, general and administration expenses increased 7.7% to $87.3 million. Total operating expenses increased 7% to $263.5 million.

Balance Sheet and Cash Flow

FactSet exited second-quarter fiscal 2020 with cash and cash equivalents of $343.5 million compared with $336.2 million in the previous quarter. Long-term debt of $574.3 million was roughly flat year over year. In the quarter, the company generated $99.7 million of cash from operating activities and capital expenditures were $25.1 million. Free cash flow was $74.6 million.

FactSet repurchased 267,500 shares for $74.2 million during the reported quarter. As of Mar 26, the company had $300 million available for share repurchases. A quarterly dividend of $27.1 million was paid out on Mar 19.

Fiscal 2020 Outlook

FactSet reaffirmed its revenue, operating margin and EPS outlook for fiscal 2020. The company continues to expect adjusted EPS between $9.85 and $10.15. The Zacks Consensus Estimate is pegged at $9.99.

Revenues are expected between $1.49 billion and $1.5 billion. The Zacks Consensus Estimate is pegged at $1.49 billion. Adjusted operating margin is anticipated in the range of 31.5%-32.5%. Anticipated annual effective tax rate is expected between 17% and 17.5%.

The company trimmed its organic ASV plus professional services expectation in response to the coronavirus-led changes in business conditions. The metric is now projected to increase in the range of $50-$75 million compared with the previous projection of $65-$85 million.

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 Blucora, Inc. , Genpact Limited (G - Free Report) and CoreLogic, Inc. .  All carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Long-term expected EPS (three to five years) growth rate for Blucora, Genpact and CoreLogic  is 20%, 14% and 11%, respectively.

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