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Broadridge (BR) Q3 Earnings Top, Revenues Lag, View Intact

Broadridge Financial Solutions Inc. BR posted third-quarter fiscal 2016 adjusted earnings of 58 cents per share (excluding acquisition and amortization related expenses), which surpassed the Zacks Consensus Estimate of 49 cents. Also, earnings were up from 47 cents reported in the year-ago quarter.


Quarter Details

Though Broadridge’s third-quarter revenues of $688.8 million increased 8.6% year over year, it lagged the Zacks Consensus Estimate of $695 million. The year-over-year increase was driven by recurring fee revenues (up 12%), which also include contribution from Net New Business and acquisitions related synergies. Recurring revenues from closed sales during the quarter were $29 million, up 7% on a year-over-year basis.

Revenues from the Investor Communication Solutions segment (75% of total revenue) increased 10.6% from the year-ago quarter to $515.4 million. The improvement was attributable to higher recurring revenues from new business, higher event-driven fee, higher distribution revenues and recent acquisitions.

The Global Technology and Operations segment (28% of total revenue) reported revenues of $191.3 million, up 7.5% from the year-ago quarter. The increase was driven by higher Net New Business and encouraging internal growth.

Broadridge’s adjusted operating income margin expanded from 15.2% to 15.9%. Selling, general and administrative expenses as a percentage of revenues increased from 14.6% to 14.8%. The company reported adjusted net income of $70 million or 58 cents per share, up from $58.8 million or 47 cents in the year-ago comparable period.

Broadridge exited the quarter with cash and cash equivalents of $354.4 million compared with $305.1 million in the previous quarter. Long-term debt on the balance sheet totaled $819.5 million.

Cash flow provided by operating activities during nine months ended Mar 31, 2016 was $161.1 million. Free cash flow came in at $105 million. During the quarter, the company repurchased 1.6 million shares and declared dividends of 30 cents per share.

Fiscal 2016 Guidance Reiterated

Broadridge reaffirmed its 2016 outlook. It continues to project revenue growth within 8% to 10%, while recurring revenue growth is expected in a range of 10% to 12%. The company expects recurring revenues from closed sales to be the key growth driver and range within $120 million to $160 million. Adjusted operating income margin is expected to be approximately 18.4%.

Adjusted earnings are expected to increase in a range of 8% to 12%. Management expects free cash flow to range within $350 million to $400 million. Effective tax rate is expected to be approximately 34.8%

Our Take

Broadridge reported mixed third-quarter results. However, year-over-year comparisons on both the counts were favorable driven by higher recurring revenues, contribution from Net New Business, higher distribution revenues and acquisition-related synergies. The company also reaffirmed its guidance for fiscal 2016.

We remain optimistic about Broadridge’s strategic acquisitions, product launches, share repurchase program and dividend paying initiatives. We also believe that 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 headwinds.

Currently, Broadridge has a Zacks Rank #3 (Hold). A better-ranked stock worth considering is Seadrill Partners LLC SDLP, sporting a Zacks Rank #1 (Strong Buy).

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