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Broadridge (BR) Q4 Earnings in Line; Revenues Beat Estimates


Broadridge Financial Solutions Inc. BR reported modest fourth-quarter fiscal 2017 results.

The company posted adjusted earnings per share of $1.71 per share (excluding acquisition and amortization related expenses), matching the Zacks Consensus Estimate. However, adjusted earnings increased 17.9% on a year-over-year basis.

In the last one year, Broadridge’s share price increased 5.4%, outperforming the Zacks industry, which gained only 1.9%.

Quarter Details

Broadridge’s fourth-quarter revenues of $1.346 billion increased a whopping 38% year over year. Moreover, it surpassed the Zacks Consensus Estimate of $1.310 billion. The year-over-year increase was driven primarily by North American Customer Communications (NACC) acquired from DST Systems Inc. DST. Better-than-expected revenues from closed sale were also a catalyst.

Recurring fee revenues increased 24% during the quarter that included contribution from Net New Business, internal growth and acquisitions related synergies. Recurring revenues from closed sales during the quarter were $64 million, reflecting an increase of 12% on a year-over-year basis. Distribution revenues during the quarter increased 65%, primarily backed by the acquisition of NACC.

Revenues from the Investor Communication Solutions segment (86% of total revenue) increased 45% from the year-ago quarter to $1.162 billion. The improvement was attributable to higher recurring revenues from net new business, internal growth and NACC acquisitions.

The Global Technology and Operations segment (17% of total revenue) revenues came in at $210 million, reflecting an increase of 11% from the year-ago quarter. The increase was driven by higher Net New Business from closed sales, internal growth and recent acquisition.

Broadridge’s adjusted operating income margin contracted from 28.6% to 24.1%. Selling, general and administrative expenses as a percentage of revenues also contracted from 12.1% to 10.3% on a year-over-year basis. The company’s adjusted net income of $204 million or $1.71 per share was up from $176 million or $1.45 per share in the year-ago period.

Broadridge exited the quarter with cash and cash equivalents of $271.1 million compared with $269.5 million in the previous quarter. Long-term debt (including current portion) on the balance sheet totalled $1.102 billion.

Cash flow used in operating activities during the twelve months ended Jun 30, 2017 was $515.9 million. Free cash flow came in at 402.2 million.

The company did not repurchase any shares during the quarter but declared a dividend of 33 cents during this period. On Aug 9, 2017, Broadridge declared a quarterly dividend of 36.5 cents payable on Oct 3, 2017. Moreover, the company declared an annual dividend of $1.46 per share an increase of 11% year over year.

Fiscal 2017 highlights

Broadridge’s fiscal 2017 revenues of $4.1 billion increased a significant 43% year over year, on the back of 6% organic growth in recurring fee revenues and the acquisition of NACC business. Closed sales were up 25% year over year and came in at $188 million in fiscal 2017. Adjusted EPS for fiscal came in at $3.13 per share, up 15% year over year.

Fiscal 2018 Guidance

Broadridge provided 2018 outlook. The company projects revenue growth in the range of 2–3%, while recurring revenue growth is expected in the range of 4–6%. The company anticipates recurring revenues from closed sales to be a key growth driver and range within $170 million to $210 million. Adjusted operating income margin is expected to be approximately 16%. Adjusted earnings are expected to increase in the range of 15–19%. Management expects free cash flow in the range of $400–$450 million.

Our Take

Broadridge reported modest fourth-quarter results. Year-over-year comparisons on both the counts were favorable driven by higher recurring revenues, internal growth, contribution from Net New Business, higher distribution revenues and acquisition-related synergies.

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 in the long run.

However, competition from DST Systems Inc. and pricing pressure remain headwinds.

Currently, Broadridge carries a Zacks Rank #2 (Buy).

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Applied Optoelectronics has an expected long-term EPS growth rate of 18.75%.

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