DFC Global Corp. reported operating earnings of 47 cents per share for fiscal first quarter 2013 (ending September 30, 2012), which lagged the Zacks Consensus Estimate by a penny as well as the year-ago quarter’s earnings of 52 cents. Post-tax operating income amounted to $20.8 million in the reported quarter, compared with $23.8 million in the year-ago quarter.
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, reported net income came in at $8.6 million or 19 cents per share in the quarter, substantially exceeding the reported net loss of $1.8 million or 4 cents in the prior-year quarter.
Total revenue for the quarter climbed 5.8% year over year to $276.7 million, almost at par with the Zacks Consensus Estimate. Higher consumer lending revenue largely aided the upside, which was partly offset by lower revenues from check cashing fees, pawn service fees and sales, purchased gold sales and money transfer fees.
Operating expenses escalated 11% year over year to $182.5 million, primarily attributable to higher salaries and benefits, provision for loan losses, depreciation, advertising and occupancy costs.
The magnitude of increase in operating costs more than offset the rise in revenue, driving operating income to shrink 3% year over year to $94.2 million in the reported quarter.
Evaluation of Capital and Balance Sheet
At the end of September 2012, the debt structure of DFC Global comprised $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 before December 2016 and $36.6 million (SEK 240.0 million) term loan in Sweden due July 2016.
As of September 30, 2012, DFC Global had drawn $8 million from its $235.0 million global revolving credit facility. The company had also drawn £5.3 million of its £6.0 million credit facility in the U.K. and had drawn SEK 50.0 million and EUR 15.9 million of its respective SEK 125.0 million and EUR 18.8 million credit facilities in Scandinavia, to fund pawn pledge books in U.K. and Scandinavia.
The company affirmed its operating earnings guidance of 2013 between $2.35 and $2.55 per share.
DFC Global’s close peer MoneyGram International Inc. (MGI - Analyst Report) is expected to report third-quarter 2012 financial results before the opening bell on November 5, 2012.
Another competitor, Euronet Worldwide Inc. (EEFT - Snapshot Report) reported its third quarter earnings of 42 cents per share, beating the Zacks Consensus Estimate of 35 cents and the year-ago quarter’s earnings of 37 cents. Operating earnings of $23.7 million in the reported quarter was 22.2% higher than $19.4 million recorded in the prior-year quarter.
We maintain our ‘Neutral’ recommendation on DFC Global. The quantitative Zacks #4 Rank (short-term Sell rating) for the company indicates a slight downward pressure on the shares over the near term.