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Broadridge (BR) Q1 Earnings Lag, Revenues Top; View Same

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Shares of Broadridge Financial Solutions Inc. (BR - Free Report) went down more than 5% yesterday, after the company reported mixed first-quarter fiscal 2017 results.


The company posted first-quarter fiscal 2017 adjusted earnings per share (EPS) of 36 cents (excluding acquisition and amortization related expenses), which missed the Zacks Consensus Estimate of 38 cents. However, earnings were up from 33 cents per share reported in the year-ago quarter.

Quarter Details

Broadridge’s first-quarter revenues of $895.3 million not only increased a whopping 50.6% year over year, but also surpassed the Zacks Consensus Estimate of $883 million. The year-over-year increase was primarily driven by North American Customer Communications (NACC), the acquisition of NACC coupled with better-than-expected growth in closed sales.

Recurring fee revenues was up 32% during the quarter, which included contribution from Net New Business and acquisitions related synergies. Recurring revenues from closed sales during the quarter were $22 million, up 26% on a year-over-year basis. Distribution revenues during the quarter went up 103%, primarily due to the acquisition of NACC.

Revenues from the Investor Communication Solutions segment (81% of total revenue) increased 68.3% from the year-ago quarter to $723.3 million. The improvement was attributable to higher recurring revenues from net new business and NACC acquisitions.

The Global Technology and Operations segment (21% of total revenue) reported revenues of $187.8 million, up 6.2% from the year-ago quarter. The increase was driven by higher Net New Business from closed sales and recent acquisition.

Broadridge’s adjusted operating income margin contracted from 11.5% to 9.1%. Selling, general and administrative expenses as a percentage of revenues also contracted from 16.3% to 12.4% on a year-over-year basis. The company reported adjusted net income of $43.9 million or 36 cents per share, up from $39.6 million or 33 cents per share in the year-ago comparable period.

Broadridge exited the quarter with cash and cash equivalents of $227.4 million compared with $727.7 million in the previous quarter. Long-term debt (including current portion) on the balance sheet totaled $1.125 billion.

Cash flow used in operating activities during the quarter was $87.4 million. Free cash flow came in at ($102.1) million. During the quarter, the company repurchased shares worth $40 million and paid a dividend of $35.5 million.

Fiscal 2017 Guidance

Broadridge reaffirmed its 2017 outlook. It continues to project revenue growth in a range of 43% to 45%, while recurring revenue growth is expected in a range of 29% to 31%. The company expects recurring revenues from closed sales to be a key growth driver and range within $140 million to $180 million. Adjusted operating income margin is expected to be approximately 15%. Adjusted earnings are expected to increase in a range of 12% to 17%. Management expects free cash flow to range within $350 million to $400 million.

Recent Development

On Nov 4, 2013, Broadridge closed the buyout of M&O Systems, Inc. (“M&O”).  According to Charlie Marchesani, President, Global Technology and Operations at Broadridge, “The acquisition of M&O adds best-in-class, back-office agnostic compensation management solutions to Broadridge’s market-leading product set.”

In Sep 2016, Broadridge announced that it has acquired the technology assets of Inveshare Inc., a financial consultant. This transaction includes a development agreement under which Broadridge will use the acquired technology assets to develop blockchain applications for its proxy business. As per the press release, the recent transaction is expected “to accelerate Broadridge’s ability to adapt distributed ledger technology capabilities to its proxy services.”

On Jul 1, 2016, Broadridge announced the closure of its acquisition of DST Systems Inc.’s North American Customer Communications (NACC) business. The two companies entered into a definitive agreement in June this year, wherein the said assets of DST System were to be acquired by Broadridge for a cash consideration of $410 million. The transaction will allow Broadridge to boost its digital communications offerings and expand the scale of its print communications business.


BROADRIDGE FINL Price, Consensus and EPS Surprise

Our Take

Broadridge reported mixed first-quarter results, wherein the bottom line missed the Zacks Consensus Estimate but the top line surpassed the same. Year-over-year comparisons on both the counts were favorable driven by higher recurring revenues, contribution from Net New Business, higher distribution revenues and acquisition-related synergies. The company also reiterated its fiscal 2017 guidance.

We remain optimistic about Broadridge’s strategic acquisitions, product launches, share repurchase program and dividend paying initiatives. We also believe that the company’s close association with Accenture (ACN - Free Report) will be beneficial over the long term.

However, competition from DST Systems Inc. and pricing pressure remain headwinds.

Currently, Broadridge has a Zacks Rank #3 (Hold). A better-ranked stock worth considering is NVIDIA Corporation (NVDA - Free Report) , sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here

NVIDIA has a long-term expected EPS growth rate of 10.3%

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