Broadridge Financial Solutions Inc. (BR - Free Report) reported modest fourth-quarter fiscal 2017 results.
The company posted adjusted earnings per share of $1.71 per share (excluding acquisition and amortization related expenses), matching the Zacks Consensus Estimate. However, adjusted earnings increased 17.9% on a year-over-year basis.
In the last one year, Broadridge’s share price increased 5.4%, outperforming the Zacks industry, which gained only 1.9%.
Broadridge’s fourth-quarter revenues of $1.346 billion increased a whopping 38% year over year. Moreover, it surpassed the Zacks Consensus Estimate of $1.310 billion. The year-over-year increase was driven primarily by North American Customer Communications (NACC) acquired from DST Systems Inc. . Better-than-expected revenues from closed sale were also a catalyst.
Recurring fee revenues increased 24% during the quarter that included contribution from Net New Business, internal growth and acquisitions related synergies. Recurring revenues from closed sales during the quarter were $64 million, reflecting an increase of 12% on a year-over-year basis. Distribution revenues during the quarter increased 65%, primarily backed by the acquisition of NACC.
Revenues from the Investor Communication Solutions segment (86% of total revenue) increased 45% from the year-ago quarter to $1.162 billion. The improvement was attributable to higher recurring revenues from net new business, internal growth and NACC acquisitions.
The Global Technology and Operations segment (17% of total revenue) revenues came in at $210 million, reflecting an increase of 11% from the year-ago quarter. The increase was driven by higher Net New Business from closed sales, internal growth and recent acquisition.
Broadridge’s adjusted operating income margin contracted from 28.6% to 24.1%. Selling, general and administrative expenses as a percentage of revenues also contracted from 12.1% to 10.3% on a year-over-year basis. The company’s adjusted net income of $204 million or $1.71 per share was up from $176 million or $1.45 per share in the year-ago period.
Broadridge exited the quarter with cash and cash equivalents of $271.1 million compared with $269.5 million in the previous quarter. Long-term debt (including current portion) on the balance sheet totalled $1.102 billion.
Cash flow used in operating activities during the twelve months ended Jun 30, 2017 was $515.9 million. Free cash flow came in at 402.2 million.
The company did not repurchase any shares during the quarter but declared a dividend of 33 cents during this period. On Aug 9, 2017, Broadridge declared a quarterly dividend of 36.5 cents payable on Oct 3, 2017. Moreover, the company declared an annual dividend of $1.46 per share an increase of 11% year over year.
Fiscal 2017 highlights
Broadridge’s fiscal 2017 revenues of $4.1 billion increased a significant 43% year over year, on the back of 6% organic growth in recurring fee revenues and the acquisition of NACC business. Closed sales were up 25% year over year and came in at $188 million in fiscal 2017. Adjusted EPS for fiscal came in at $3.13 per share, up 15% year over year.
Fiscal 2018 Guidance
Broadridge provided 2018 outlook. The company projects revenue growth in the range of 2–3%, while recurring revenue growth is expected in the range of 4–6%. The company anticipates recurring revenues from closed sales to be a key growth driver and range within $170 million to $210 million. Adjusted operating income margin is expected to be approximately 16%. Adjusted earnings are expected to increase in the range of 15–19%. Management expects free cash flow in the range of $400–$450 million.
Broadridge reported modest fourth-quarter results. Year-over-year comparisons on both the counts were favorable driven by higher recurring revenues, internal growth, contribution from Net New Business, higher distribution revenues and acquisition-related synergies.
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 in the long run.
However, competition from DST Systems Inc. and pricing pressure remain headwinds.
Currently, Broadridge carries a Zacks Rank #2 (Buy).
Another top-ranked stock worth considering in the broader technology sector is Applied Optoelectronics, Inc. (AAOI - Free Report) , which sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Applied Optoelectronics has an expected long-term EPS growth rate of 18.75%.
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