BR: Income Statement Analysis for the June 2009 Quarter

Earnings for Broadridge Financial (NYSE: BR) were $0.83 per share in the three months that ended on 30 June 2009, up from $0.69 in the same quarter of last year.  The April-to-June period is the fourth quarter of Broadridge's fiscal year.

Broadridge Financial Solutions, Inc., provides investor communication, securities processing, and clearing services to financial companies.

This post examines Broadridge's Income Statement for the quarter and compares it to our "look-ahead" estimates.  Our target for Net Income in the latest quarter was $0.77 per share.

In a second article, we will report Broadridge's scores as measured by the GCFR Financial Gauges.  The follow-up post will also provide the latest figures for the financial metrics we use to analyze Cash Management, Growth, Profitability and Value.

The principal sources for this post were the earnings announcement, management's presentation, the conference call transcript at SeekingAlpha, and the rapidly filed 10-K annual report.  Our summary of background information about Broadridge Financial and the business environment in which it is currently operating can be found in the look-ahead.

Please click here to see a full-sized, normalized depiction of the actual and projected results for the just-concluded quarter, as well as the quarterly Income Statements for the last couple of years.  Please note that our organization of revenues, expenses, gains, and losses, which we use for all analyses, can and often does differ in material respects from company-used formats.  The standardization facilitates cross-company comparisons.




Revenue in the June 2009 quarter was 7.1 percent less than in the year-earlier period.  We expected, based on the company's guidance for the fiscal year, a 5.3-percent Revenue decline.  As a result, our estimate was too high by 1.9 percent.

With respect to the Revenue, Broadridge's management reported:

Growth in recurring fee revenues in Investor Communications business helped offset significant decline in Mutual Fund Event-Driven revenues

Fiscal 2009 Revenue was 2.6 percent less than in fiscal 2008. This growth rate was close to the bottom of the "-3% to flat" range forecast by Broadridge in May.  Note that Broadridge's Revenue exhibits a seasonal pattern in which the June quarter is much stronger than any other.  Revenue in the June 2009 quarter was 34 percent of fiscal year's total.


Cost of Net Revenues -- we call it Cost of Goods Sold -- was 66.9 percent of Revenue.  This translates into a Gross Margin of 33.1 percent, up rather nicely from 31.4 percent last year.  We had only expected the margin to be 31 percent.

Sales, General, and Administrative expenses were 6.9 percent of Revenue in the quarter, down from 9.2 percent in the year-earlier quarter.  Our target for the SG&A expenses was 8.0 percent of Revenue, so actual costs were significantly less than we expected.
 
Operating Income, as we define it, was a robust 9.6 percent greater than the amount attained in last year's June quarter.  Our prediction for Operating Income was 10.7 percent too low.  The better-than-expected Gross Margin and the lower-than-expectedSG&A expenses more than compensated for the weaker-than-expected Revenue.

Other, non-operating items such as interest and foreign exchange are typically minor for Broadridge, but these items summed to a greater-than-anticipated $7.7 million net expense in the recent quarter.  The largest element of this expense was a $5 million loss on foreign currency exchange.

Despite the foreign currency loss, pretax income remained 5 percent higher than our target.

The Income Tax Rate was 37 percent in the quarter, one percent less than expected.

Taking all of the above into consideration, Net Income was a remarkable 19.5 percent above its value in the June 2008 period.  We had projected an increase of 12 percent.  For the fiscal year as a whole, Net Income grew by 16.2 percent.


In summary, although Revenue was down in the June quarter (and the year), the improved Gross Margin and lower SG&A expenses, partially offset by higher non-operating expenses, enabled Broadridge to ring up a profitable quarter that beat expectations handily. 

Broadridge management is certainly optimistic.  They stated;

Sales pipeline remains strong and has large promising opportunities

And, in keeping with the theory that actions speak louder than words, they doubled the company's dividend from $0.28 to $0.56 per share.  The company also authorized the purchase of up to 10 million common shares.


Full disclosure: Long BR at time of writing.