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Broadridge Up Despite Q4 Earnings Miss, Revenues Beat

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Shares of Broadridge Financial Solutions, Inc. (BR - Free Report) went up 1.2% on Aug 8, primarily due to an increase in its top and bottom lines on a year-over-year basis.

Broadridge reported adjusted earnings of $1.16 per share in the fourth quarter of fiscal 2014, which missed the Zacks Consensus Estimate by a couple of cents. However, earnings increased from $1.15 per share reported in the year-ago quarter.

Quarter Details

Broadridge’s fourth-quarter revenues of $885.9 million increased 2.4% from the year-ago quarter and beat the Zacks Consensus Estimate of $874.0 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 (81% of total revenue) increased 3.6% from the year-ago quarter to $714.5 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 (19% of total revenue) reported revenues of $174.1 million, up 0.5% from the year-ago quarter. The increase was driven by strength in new business.

Broadridge’s gross margins expanded 297 basis points on a year-over-year basis to 37.8% primarily due to a higher revenue base. The company’s adjusted earnings before interests and taxes (EBIT) margins contracted from 25.6% to 24.1% during the same period of time primarily due to higher expenses.

The company reported adjusted net income of $144.6 million or $1.16 per share, which increased from $142.5 million or $1.15 per share reported in the year-ago quarter.

Broadridge exited the quarter with cash and cash equivalents of $347.6 million compared with $244.4 million in the previous quarter. Long-term debt remained flat sequentially at $524.1 million. Cash flow from operations amounted to $388.0 million during the six months ended Jun 2014.

During the quarter, Broadridge repurchased 1.9 million shares and declared a dividend of approximately 27 cents per share.

Fiscal 2015 Guidance

Broadridge provided its fiscal 2015 outlook. Broadridge’s fiscal-2015 revenue growth is projected at 4% to 6% while recurring revenue growth is expected in the range of 5% to 7%. The company expects recurring revenues from closed sales to be the key 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 17.3% and 17.7%.

Adjusted earnings per share are also expected in the range of $2.42???$2.52 (mid-point $2.47), while the Zacks Consensus Estimate is pegged at $2.48 per share. Management also expects free cash flow to range within $320 to $370 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.

Our Take

Broadridge reported mixed fourth-quarter results, with the bottom line missing the Zacks Consensus Estimate but the top line surpassing the same. The year-over-year comparisons were favorable. The company witnessed higher recurring revenues and growth in new businesses. Moreover, the company provided an encouraging fiscal-2014 earnings 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, competition from DST Systems Inc. and pricing pressure remain the headwinds for the company.

Currently, Broadridge has a Zacks Rank #2 (Buy). Investors can also consider F5 Networks, Inc. (FFIV - Free Report) which has a Zacks Rank #1 (Strong Buy) and is worth buying.


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