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Broadridge Beats Q3 Earnings Estimate

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Broadridge Financial Solutions, Inc. (BR - Free Report) reported adjusted earnings of 44 cents in the third quarter of 2014, which not only came ahead of the Zacks Consensus Estimate of 41 cents but also improved from 39 cents reported in the year-ago quarter.

Quarter Details

Broadridge’s third-quarter revenues of $606.3 million increased 5.1% from the year-ago quarter and beat the Zacks Consensus Estimate of $592.0 million. Year-over-year revenues were driven by recurring fee revenues (up 9% year over year), which also include contribution from Net New Business.

Moreover, revenues from the Investor Communication Solutions segment (71% of total revenue) increased 6.5% from the year-ago quarter to $430.3 million. The improvement was attributable to higher recurring revenues from new business and higher internal growth from market based activities.

The Securities Processing Solutions segment (29% of total revenue) reported revenues of $177.9 million, up 4.9% from the year-ago quarter. The increase was driven by strength in new business and higher equity trade volumes.

Broadridge’s gross margins expanded 337 basis points on a year-over-year basis to 29.5% primarily due to higher revenue base. The company’s earnings before interests and taxes (EBIT) margins also expanded from 11.7% to 12.7% during the same period of time aided by higher revenues and improved productivity.

The company reported adjusted net income of $55.1 million or 44 cents, which increased from $49.5 million or 39 cents reported in the year-ago quarter.

Broadridge exited the quarter with cash and cash equivalents of $244.4 million compared to $240.3 million in the previous quarter. Long-term debt remained flat sequentially at $524.1 million.

During the quarter, Broadridge repurchased 0.5 million shares at $38.19 per share and declared approximately 21 cents per share as dividends.

Fiscal 2014 Guidance

Broadridge reiterated its fiscal 2014 outlook and expects to report in the higher end of its guidance range. Broadridge’s fiscal-2014 revenue growth is projected at 4% to 5% while recurring revenue growth is expected in the range of 7% to 8%. The company expects recurring revenues from closed sales to be the key revenue growth driver. Recurring revenues from closed sales are forecast in the range of $110.0 to $150.0 million. Non-GAAP margin is expected between 16.4% and 17.0%.

Adjusted earnings per share are also expected in the range of $2.15-$2.25, while the Zacks Consensus Estimate is pegged at $2.24 per share. Management also expects adjusted free cash flow to range within $275 to $325 million.

Apart from this, Broadridge expects the Emerald acquisition to complement its sales, education and client communications capabilities, strengthening its platform and expanding it into the advisory market. Owing to Broadridge’s better-than-expected operating performance, the company has raised its fiscal 2014 investment limit from $28 million to $33 million to drive long-term growth initiatives.

Our Take

Broadridge reported better-than-expected third-quarter results and the year-over-year comparisons were favorable. The company had witnessed higher recurring revenues and growth in new businesses. Also, the company’s improved productivity led to margin expansions. Moreover, the company reiterated its fiscal-2014 outlook.

We remain optimistic on Broadridge’s strategic acquisitions, product launches, share repurchase program and dividend paying initiatives. We also believe Broadridge’s close association with Accenture (ACN - Free Report) will be beneficial in the long term. However, significant competition from companies such as DST Systems Inc. has intensified pricing pressure for the company.

Currently, Broadridge has a Zacks Rank #3 (Hold). Investors may also consider Rambus Inc. (RMBS - Free Report) , which sports a Zacks Rank #1 (Strong Buy).

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