Lender Processing Services Inc. (LPS) reported second-quarter 2011 adjusted earnings per share of 56 cents, a penny ahead of the Zacks Consensus Estimate and at the high end of its own guidance range of 54 cents to 56 cents. However, the earnings per share declined from the year-ago level of 89 cents.
On a GAAP basis, earnings per share were 25 cents, down from 85 cents recorded in the year-earlier quarter. The drop in default volume and origination activity along with higher regulatory and legal expenses hurt Lender Processing’s second quarter earnings.
Lender Processing recorded total revenue of $517.5 million in the quarter under review, down 12.8% year over year. Reported revenue surpassed the Zacks Consensus Estimate of $508 million.
Technology, Data and Analytics Segment (TD&A)
Second-quarter revenues for the TD&A segment were $195.3 million, up 8.6% year over year. Mortgage processing revenues of $102.8 million nudged up 0.4% year over year. Other TD&A revenues grew 19.5% year over year to $92.6 million driven by strong growth in Desktop, as well as higher Data & Analytics revenues.
Adjusted operating income for the segment was $58.2 million, down 10.2% year over year. The downside was primarily due to lesser contributions from other software and services offerings.
Loan Transaction Services (LTS)
Second-quarter revenues for the LTS segment declined 22.1% year over year to $323.7 million. The downfall in the segment’s revenues was due to deceases of 19.3% in revenues from Loan Facilitation Services and 23.5% in revenues from Default Services.
The performance at the Default Services segment was hit by continued delays in the initiation of foreclosure proceedings in the industry. In the reported quarter, Loan Facilitation and Default Services recorded revenues of $113.4 million and $210.3 million, respectively.
Overall adjusted operating income for the segment declined 42% year over year to $58.9 million mainly due to lower income in Default Services as well as Loan Facilitation Services.
Financial Position
At quarter end, cash balance of the company was $22.0 million while outstanding debt was $1.1 billion. During the quarter, the company repurchased 2.0 million shares for $53.0 million.
Outlook
For the third quarter of 2011, management expects adjusted earnings per share within 53 cents to 55 cents. For full-year 2011, management expects adjusted earnings in the range of $3.57 to $3.64 per share. Management expects revenues to decline in the mid single-digit range year over year in 2011.
Our Take
Lender Processing expects market conditions in its origination and default businesses as well as the broader economy to remain challenging. Hence, we expect tough quarters based on the drastic decline in origination volumes. Management expects 2011 industry origination volumes to be down more than 30% year over year. However, to mitigate this negative impact, the company intends to drive margins by cost reduction initiatives.
Lender Processing currently retains the Zacks #5 Rank, which translates into a short-term Strong Sell rating. We are also maintaining our long-term Underperform recommendation on the stock.
One of Lender Processing’s primary competitors, FTI Consulting Inc. (FCN) will report its second quarter earnings next week.
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