Shares of Broadridge Financial Solutions, Inc. (BR) went up 3.1%, yesterday after the company reported better-than-expected second quarter of fiscal 2015 results. The company’s adjusted earnings of 32 cents per share (excluding acquisition and amortization related expenses) came ahead of the Zacks Consensus Estimate of 29 cents. Moreover, earnings were up from 25 cents per share reported in the year-ago quarter.
Quarter Details
Broadridge’s second-quarter revenues of $574.6 million increased 10.4% from the year-ago quarter and beat the Zacks Consensus Estimate of $555 million. Year over year, revenues were driven by recurring fee revenues (up 7% year over year), which also include the contribution from Net New Business, internal growth and acquisitions. Also, higher distribution revenues (up 16% year over year) contributed to quarterly revenues. Notably, recurring revenues from closed sales during the quarter were $49 million, up 111% on a year over year basis.
Moreover, revenues from the Investor Communication Solutions segment (70.3% of total revenue) increased 15.8% from the year-ago quarter to $403.9 million. The improvement was attributable to higher recurring revenues from new business, higher distribution revenues and growth from market-related activities.
The Global Technology and Operations segment (30.3% of total revenue) reported revenues of $174.3 million, up 1.8% from the year-ago quarter. The increase was driven by higher Net New Business.
During the quarter, Broadridge inked a deal with Scottrade to provide both trade processing and client communication solutions. This deal will help Broadridge to expand its product portfolio and customer reach, which in turn will help it to eliminate business risks.
Broadridge’s gross margin expanded 192 basis points on a year-over-year basis to 27.9% primarily due to a higher revenue base. The company’s adjusted earnings before interests and taxes (EBIT) margins also expanded from 9.3% to 10.4% in the reported quarter.
The company reported adjusted net income of $40 million or 32 cents per share, up from $31.2 million or 25 cents per share reported in the year-ago quarter.
Broadridge exited the quarter with cash and cash equivalents of $314.1 million compared with $331.3 million in the previous quarter. Long-term debt on the balance sheet totaled $524.3 million.
During the quarter, Broadridge repurchased 0.2 million shares and declared a dividend of approximately 27 cents per share.
Fiscal 2015 Guidance
Broadridge reiterated its 2015 outlook. The company’s fiscal 2015 revenue growth is projected within 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 million to $150 million. Non-GAAP margin is expected between 17.3% and 17.7%.
Adjusted earnings per share are expected in the range of $2.42 to $2.52, while the Zacks Consensus Estimate is pegged at $2.50. Management also expects free cash flow to range within $320 million to $370 million.
Our Take
Broadridge reported better-than-expected second-quarter results. Also, the year-over-year comparisons on both counts were favorable driven by higher recurring revenues, higher distribution revenues and growth in new businesses. The company reiterated its fiscal 2015 outlook.
We remain optimistic about Broadridge’s strategic acquisitions, product launches, share repurchase program and dividend paying initiatives. We also believe the company’s close association with Accenture (ACN) will be beneficial over the long term. However, competition from DST Systems Inc. (DST) and pricing pressure remain the headwinds.
Currently, Broadridge has a Zacks Rank #4 (Sell). Investors may consider Rambus Inc. (RMBS) instead, which has a Zacks Rank #2 (Buy).
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