Lender Processing Services Inc. (LPS) reported first-quarter 2012 adjusted earnings per share of 59 cents, which surpassed the Zacks Consensus Estimate of 57 cents as well as its own guidance range of 50 cents to 55 cents. However, the quarter’s earnings fell sharply from the year-ago level of 81 cents per share.
On a GAAP basis, earnings per share were 56 cents, down from 63 cents recorded in the year-earlier quarter.
The declining trend was also noticed in the company’s total revenue, which decreased 5.8% year over year to $506.0 million.
Operating income in the quarter plunged 27.3% year over year to $94.3 million.
Technology, Data and Analytics Segment (TD&A)
First-quarter revenues for the TD&A segment were $178.1 million, up 5.7% year over year; thanks to increased contribution from servicing technology, origination technology revenue, default technology as well as data and Analytics revenue.
Adjusted operating income for the segment was $54.0 million, down 4.6% year over year. The downside could be due to lower income from the Origination Technology division, which incurred higher costs related to growth initiatives. However, higher income from Servicing Technology partially compensated for the loss.
Transaction Services (TS)
First-quarter revenues for the TS segment declined 10.9% year over year to $329.6 million. The downfall in the segment’s revenues can be traced back to revenue decrease of 24.2% from Default Services partially compensated by a 13.8% rise in Origination Services revenue.
The performance by Default Services was hit by continued delays in the initiation of foreclosure proceedings in the industry.
Overall adjusted operating income for the segment declined 38.8% year over year to $51.5 million mainly due to lower income from the Default Services business.
Financial Position
At quarter end, cash balance of the company was $103.7 million while outstanding debt was $1.1 billion.
Outlook
For the second quarter of 2012, management expects adjusted earnings per share within 58 cents to 62 cents. Management expects revenues to remain in the range of $500 million to $520 million.
Our Take
Lender Processing outdid the Consensus but lagged year over year. Its default businesses continued to remain challenging. While 2012 looks to be another challenging year, management remains focused on expanding market share, leveraging strong cash flow and positioning itself to capitalize on market recovery once it rebounds. Its Origination Services revenue, which was struggling for long, also started to improve.
Lender Processing, which competes with FTI Consulting Inc. (FCN), currently retains the Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock.
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