Why Is Broadridge Financial (BR) Up 4.8% Since Last Earnings Report?
It has been about a month since the last earnings report for Broadridge Financial Solutions (BR). Shares have added about 4.8% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Broadridge Financial due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Broadridge Q4 Earnings and Revenues Trail Estimates
Broadridge Financial Solutions’ fourth-quarter fiscal 2018 results missed the Zacks Consensus estimate on both counts.
Adjusted earnings of $1.86 per share missed the consensus mark by 2 cents but came ahead of the year-ago figure by 15 cents. The year-over-year improvement can be attributed mainly to lower tax rates (as a result of the Tax Cuts and Jobs Act). Notably, Broadridge enjoyed a lower effective tax rate of 19.8% compared with 34.3% in the year-ago quarter.
Total revenues of $1.32 billion lagged the consensus estimate by $6.6 million and fell short of the year-ago figure by $26 million. Event-driven fee revenues and distribution revenues decreased significantly. Recurring fee revenues of $862 million increased 7% from the year-ago quarter driven by organic growth and recent acquisitions. There was a positive impact of $2 million on revenues from foreign currency movements.
In the reported quarter, Broadridge completed two acquisitions. In May, the company completed the purchase of FundAssist Limited at an aggregate price of $47 million. In June, the company completed the purchase of MackayWilliams LLP at an aggregate price of $8 million.
Revenues by Segment
Investor Communication Solutions segment (84% of total revenues) revenues decreased 3.8% from the year-ago quarter to $1.11 billion. Under this segment, recurring fee revenues of $628 million increased 7% from the year-ago quarter due to internal growth, net new business from increases in revenue from closed sales and revenues from acquisitions. Event-driven fee revenues of $61 million decreased 33% year over year due to decrease in mutual fund proxy and equity proxy contests. Distribution revenues decreased 11% to $423 million.
Global Technology and Operations segment (17%) revenues came in at $233.5 million, up 7.8% from the year-ago quarter. Segment revenues were driven by internal growth from higher trade and non-trade activity levels and higher net new business from increase in revenues from closed sales.
Operating Results
Adjusted operating income of $290 million decreased 10.5% year over year. Adjusted operating income margin decreased to 21.9% from 24.1% in the prior-year quarter. Decrease in event-driven fee revenues and rise in other operating expenses, including growth initiatives, resulted in the margin contraction. Total operating expenses increased 0.6% to $1.06 billion.
Balance Sheet and Cash Flow
Broadridge exited fourth-quarter fiscal 2018 with cash and cash equivalents of $263.9 million compared with $352.1 million at the end of prior quarter. Long-term debt was $1.05 billion compared with $1.20 billion at the end of the prior quarter.
The company generated $418.8 million of cash from operating activities in the reported quarter. Adjusted free cash flow was $391.5 million. Capital expenditures were $21.9 million.
Dividend Hike
On Aug 6, 2018, the board of directors of Broadridge declared a quarterly dividend of 48.5 cents per share payable on Oct 3 to shareholders of record on Sep 18. This includes a dividend hike of 33% to $1.94 per share from $1.46. This marks the eleventh consecutive year of annual dividend increase since the company has become public in 2007.
In the reported quarter, Broadridge paid $42.8 million in dividends. In fiscal year 2018, Broadridge paid $165.8 million in dividends.
Fiscal 2019 Guidance
Broadridge provided guidance for fiscal year 2019. Total revenues are expected to grow in the range of 3-5%. Recurring revenue growth is expected in the range of 5-7%. Adjusted earnings per share are expected to register 9-13% growth.
Adjusted operating income margin is estimated to be register approximately 16.5% growth. Adjusted free cash flow expectations lie in the range of $565-$615 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 7.26% due to these changes.
VGM Scores
Currently, Broadridge Financial has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. It comes with little surprise Broadridge Financial has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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