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DFC Global Beats, Revises Outlook

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DFC Global Corp. reported operating earnings of 56 cents per share for fiscal second quarter 2013 (ending Dec 31, 2012), which surpassed the Zacks Consensus Estimate of 54 cents by 3.7%. Results improved 7.7% from 52 cents earned in the year-ago quarter. Post-tax operating income amounted to $24.4 million in the reported quarter, improving 3.8% from $23.5 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 $19.7 million or 45 cents per share in the quarter, comparing unfavorably with reported net income of $26.6 million or 59 cents in the prior-year quarter.

Operational Update

Total revenue for the quarter climbed 11.2% year over year to $292.9 million, outperforming the Zacks Consensus Estimate by 1.7%. Higher consumer lending revenues largely aided the upside, along with improvement in pawn service fees and sales and purchased gold sales and money transfer fees.

Operating expenses escalated 15.5% year over year to $193.3 million, primarily attributable to higher salaries and benefits, provision for loan losses, depreciation, advertising and occupancy costs.

The magnitude of increase in operating costs was offset by the rise in revenue, driving operating income to improve 3.7% year over year to $99.6 million in the reported quarter.

Evaluation of Capital and Balance Sheet

At the end of Dec 2012, the debt structure of DFC Global comprised $230.0 million of senior convertible notes due 2017, $36.2 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 Dec 2016 and $36.6 million (SEK 240.0 million) term loan in Sweden due Jul 2016.

As of Sep 30, 2012, DFC Global had drawn $45 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 SEK 35.0 million and EUR 14.8 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.

Share Repurchase Update

In fiscal second quarter, DFC Global bought back 1.6 million shares at an average share price of $16.89.

Guidance Revised

The company lowered the high end of its 2013 operating earnings guidance. It comes to $2.35 and $2.45, revised from $2.35 and $2.55 per share.

Our Take

DFC Global has been diversifying in both sectors of products and geography for years. It has completed several acquisitions consistent with its objective to expand upon and diversify from its core retail financial services business in Canada, UK and the U.S.

It strives to be one of the leading providers of financial services to the ALICE (Asset Limited, Income Constrained, Employed) and ARTI (Asset Rich, Temporarily Illiquid) demography. As such, it expects to purchase more pawn lending store chains in the United Kingdom and continental Europe. It also intends to work on de novo stores and widen its exposure to secured jewelry lending in select North American locations.

The company is also eyeing business prospects in the emerging economies of Asia, Africa and South America.

DFC Global currently carries a Zacks Rank # 3 (Hold). Among diversified financial services companies carrying a favorable Zacks Rank #1 (Strong Buy), Euronet Worldwide Inc. (EEFT - Free Report) is expected to release its fourth-quarter results on Feb 15.  FleetCor Technologies, Inc. (FLT - Free Report) , carrying a Zacks Rank #2 (Buy) will report on Feb 7, after the closing bell. Another Zacks Rank # 2 carrier Apollo Residential Mortgage, Inc. is also worth noting.

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