Jacksonville, Florida-based Lender Processing Services Inc (LPS) reduced its second quarter 2011 adjusted earnings outlook to 54 cents to 56 cents from 79 cents to 82 cents due to a further drop in default volume and origination activity, particularly for refinancing. Additionally, higher regulatory and legal expenses forced the company to lower its outlook. The company also expects second quarter revenue to plunge 8% sequentially.
Lender Processing experienced no upside in default volume in May and early June and now projects second quarter default revenue to be lower than first quarter by about 6%. Moreover, with the possibility of further foreclosure delays, the company expects default volume to continue to remain at depressed levels. The lower default volume will also result in softness in Other TD&A sub-segment.
Going forward, the company expects tough quarters based on the significant decline in the origination volumes. Management expects 2011 industry origination volumes to be down more than 30% year over year.
Management believes market conditions in its origination and default businesses as well as the broader economy will continue to remain challenged for the rest of the year. Hence, the company intends to drive margins by cost reduction initiatives and focus on enhancing shareholder’s value. As a result, the board also approved a share repurchase program of $100 million.
For full-year 2011, management earlier expected adjusted earnings in the range of $3.57–$3.64 compared with the previous guidance of $3.74–$3.81 per share. Management also anticipated revenues to decline in the mid single-digit range in 2011. Though, Lender Processing said that it will provide updated full year 2011 outlook during its second quarter earnings in July.
Following the announcement of the company reducing its outlook, share prices fell 90 cents from the previous day price and closed at $23.37 on Thursday. The Zacks Consensus Estimate for the second quarter of 2011 is pegged at 80 cents.
One of Lender Processing’sprimary competitors, FTI Consulting Inc.’s (FCN), during its first quarter results, raised its fiscal 2011 EPS estimate to $2.30 – $2.45 from the earlier projection of $2.00 to $2.20 based on growth across in all the segments, except Corporate/Restructuring segment and benefit from transactions with LECG Corporation.
We have a Zacks #4 Rank (short-term Sell rating) on the stock. We also reiterate our long-term Underperform recommendation.
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