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DST Systems (DST) Beats Q2 Earnings & Revenue Estimates

Zacks Equity Research
Updated

DST Systems Inc. DST reported second-quarter 2016 non-GAAP earnings of $1.42 per share, beating the Zacks Consensus Estimate of $1.25. Also, earnings per share increased on a year-over-year basis.

 

DST Systems Inc. (DST) Street EPS & Surprise Percent - Last 5 Quarters | FindTheCompany

 

Quarter Details

Total revenue in the second-quarter was $390.5 million, up 7.4% from the year-ago quarter. Excluding out-of-the-pocket reimbursements, consolidated operating revenues increased 7% year over year to $373.9 million and surpassed the Zacks Consensus Estimate of $372 million.

Financial Services operating revenues (excluding out-of-the-pocket reimbursements) increased 5.2% year over year to $269.8 million, primarily due to businesses acquired during 2015 and 2016, better-than-expected revenues from professional services and growth in Brokerage Solutions businesses.

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Healthcare Services operating revenues were up 12.9% on a year-over-year basis and came in at $104 million, primarily due to high pharmacy claims, new medical claims and organic growth.

Apart from this, Investments and Other Segment operating revenues decreased 85.7% on a year-over- year basis and came in at $0.10 million.

Cost and expenses were up 10.6% from the year-ago quarter to $320.4 million, primarily due to increased investments for new business expansion. As a percentage of revenues, costs and expenses were up 275 basis points (bps) on a year-over-year basis.

Non-GAAP operating income increased 21.9% year over year and came in at $68.9 million. Operating margin was also up 225 bps on a year-over-year basis to 18.4%. The increase in operating income was primarily due to better-than-expected revenues from Healthcare Services segment coupled with cost-cutting measures within the Financial Services segment.

DST reported non-GAAP net income of $47.6 million compared with $42.2 million reported in the year-ago quarter.

DST Systems’ balance sheet appears highly leveraged. The company exited the quarter with $72.7 million in cash and equivalents compared with $73.4 million in the previous quarter. Long-term debt (including current portion) was $712.2 million compared with $721.5 million in the previous quarter.

During the second quarter, DST Systems repurchased roughly 0.66 million shares worth $75 million. During the quarter, management approved a new share repurchase program of $300 million. Moreover, the company had $225 million remaining under the existing share repurchase plan. The company also declared a quarterly dividend of 33 cents per share.

DST SYSTEMS Price, Consensus and EPS Surprise

DST SYSTEMS Price, Consensus and EPS Surprise | DST SYSTEMS Quote

Conclusion

DST reported better-than-expected second-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.

Most recently, Broadridge Financial Solutions Inc. BR announced that it has closed its acquisition of DST’s North American Customer Communications (NACC) business. The two companies entered into a definitive agreement in June this year, wherein the said assets of DST System were to be acquired by Broadridge for a cash consideration of $410 million.

DST Systems’ NACC is the largest transactional printer in North America. The unit offers customer communication services including print and digital communication solutions, content management, postal optimization and fulfilment.

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 #5 (Strong Sell).

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