Broadridge Financial Solutions delivered strong quarterly earnings , but investors wanted more from the investor communications and financial technology provider. Shares declined on Wednesday after management merely reaffirmed their full-year guidance in an earnings season that has brought a plethora of beat-and-raise quarters from S&P 500 companies.
Broadridge’s largest businesses is processing and distributing the proxies and regulatory filings for nearly every public U.S. company—electronically and by paper mail. It also provides software for asset managers and broker-dealers to handle back-office functions like trade processing, record-keeping, and compliance. The company has a market value of some $21 billion.
Broadridge said Wednesday morning that it earned an adjusted $1.07 per share in the first quarter of its fiscal 2022, which corresponds to the calendar third quarter. That was comfortably above Wall Street analysts’ consensus estimate of 97 cents per share, and up 9% from the year-ago period. Earnings per share according to generally accepted accounting principles were 57 cents, while net income was $126 million.
Broadridge management reaffirmed their fiscal 2022 full-year guidance for 11% to 15% adjusted earnings per share growth, or a result of $6.28 to $6.51. That fits in to the top end of the company’s three-year plan , unveiled in late 2020.
But investors and analysts were clearly hoping for a lift to that fiscal 2022 profit guidance given the 10-cent earnings-per-share beat in the first quarter. Broadridge stock (ticker: BR) was down almost 6% on Wednesday around midday, to about $169.
It’s a seasonal business , with proxy season bringing in the bulk of Broadridge’s annual revenues and earnings. That falls in the last two quarters of the company’s fiscal year, with the first half usually representing under 30% of Broadridge’s full-year adjusted earnings per share, CFO Edmund Reese said on Wednesday.
“Most companies that are out there reporting now are in their third quarter,” CEO Tim Gokey told Barron’s . “So if they’re beating, they’re raising because they’re almost at the end. We’re at the very beginning of the year and it’s always a small quarter for us, so we never change our guidance based on the first quarter alone.”
Gokey also suggested that the extra first-quarter profit could be turned toward more investment spending later in the year, rather than flowing through to earnings. That’s a CEO managing for the full year, not individual quarters.
Broadridge’s revenue was $1.2 billion last quarter, up 17% year over year and just ahead of the consensus estimate. Of that, the company’s revenue from recurring fees—the most closely watched metric—rose 16%, to $751 million. The $2.6 billion acquisition of electronic trading platform Itiviti, which closed last spring, made up the bulk of that increase.
Management on Wednesday also reaffirmed their guidance for 12% to 15% recurring revenue growth this fiscal year.
A standout in the seasonally less important quarter for Broadridge was a record 39% year-over-year jump in equity positions, thanks to more brokerage accounts and more individual holdings per account. That’s a good leading indicator for Broadridge, which earns a fee for each individual communication it delivers on behalf of companies to their shareholders.
More investors holding more stocks means more fees. It’s part of a long-term trend toward greater democratization of investing, Gokey says, that has been a tailwind for Broadridge. Generally, stock-record growth has compounded at a high-single-digit percentage rate in recent years.
Broadridge stock had returned about 25% annually including dividends over the past five years through Tuesday’s close. That compares with a 19% annual return from the S&P 500 over the past half decade. Broadridge shares currently carry a dividend yield of 1.5% annually.
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