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DST Systems (DST) Tops Q1 Earnings & Revenue Estimates

DST Systems Inc. DST reported first-quarter 2016 non-GAAP earnings of $1.61 per share, beating the Zacks Consensus Estimate of $1.46. Also, earnings per share increased on a year-over-year basis.

Quarter Details

Total revenue in the first-quarter was $521.1 million, up 5.1% from the year-ago quarter. Excluding out-of-the-pocket reimbursements, consolidated operating revenues increased 6.2% year over year to $745.8 million and surpassed the Zacks Consensus Estimate of $516.3 million.

Financial Services operating revenues (excluding out-of-the-pocket reimbursements) increased 3.3% year over year to $258.7 million, primarily due to businesses acquired during 2015 and 2016, better-than-expected revenues from professional services and growth in Brokerage Solutions and Applied Analytics businesses.

Healthcare Services operating revenues were up 13.4% on a year-over-year basis and came in at $104.2 million, primarily due to high pharmacy claims, new medical claims and organic growth.

Customer Communications (previously Output Solutions) operating revenues were up 3.2% year over year to $157.5 million. Contribution from North America remained strong due to client wins and higher professional services revenues.

Apart from this, Investments and Other Segment operating revenues were flat on a year-over- year basis and came in at $0.7 million.

Cost and expenses were up 8.1% from the year-ago quarter to $642 million, primarily due to increased investments for new business expansion. As a percentage of revenues, costs and expenses were up 341 basis points (bps) on a year-over-year basis. This in turn impacted operating results. Non-GAAP operating margin was down 34 bps on a year-over-year basis to 16.1%.

DST reported non-GAAP net income of $55.1 million compared with $56.2 million reported in the year-ago quarter.

Balance Sheet, Share Repurchases & Dividend

DST Systems’ balance sheet appears highly leveraged. The company exited the quarter with $73.4 million in cash and equivalents compared with $89.6 million in the previous quarter. Long-term debt (including current portion) was $721.5 million compared with $562.1 million in the previous quarter.

During the first quarter, DST Systems repurchased roughly 0.70 million shares worth $75 million. Moreover, the company had $75 million remaining under the existing share repurchase plan as of Mar 31, 2016. DST had. The company also declared a quarterly dividend of 33 cents per share.

Conclusion

DST reported better-than-expected first-quarter results, wherein both the top and bottom lines surpassed the Zacks Consensus Estimate. Also, both revenues and earnings increased on a year-over-year basis.

Going forward, we are still of the opinion that DST Systems’ business volume and massive scale of operation in Financial Services will attract new customers. Moreover, we expect steady contributions from acquisitions to support revenue growth. Continued share buybacks and dividend payments are the other encouraging factors.

On the other hand, decreasing organic revenue growth, tough competition from International Business Machines Corporation IBM and Fiserv Inc. FISV, and a high debt burden remain concerns.

Currently, DST Systems carries a Zacks Rank #3 (Hold).

A better-ranked stock in the technology space is Lexmark International Inc. LXK, sporting a Zacks Rank #1 (Strong Buy).

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FISERV INC (FISV): Free Stock Analysis Report
 
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