FactSet Lags Q1 Earnings Estimates - Analyst Blog
December 18 2013 - 9:00AM
Zacks
Shares of FactSet Research Systems Inc. (FDS)
dropped 6.36% on Tuesday after the company’s first-quarter results
fell shy of the Zacks Consensus Estimate. The company reported
adjusted earnings per share of $1.22 which lagged the Zacks
Consensus Estimate of $1.24 per share.
Quarter Details
Although FactSet reported revenues of $222.9 million which
increased 5.6% on a year-over-year basis, it lagged the Zacks
Consensus Estimate of $224.0 million. Reported revenues were at the
lower end of management’s guided range of $222.0 million to $225.0
million. Organic revenue growth, excluding the Revere Data
acquisition, was 5.5% year over year.
During the quarter, FactSet’s U.S. revenues grew 6.0% from the
year-ago quarter to $153.0 million, while its non-U.S. revenues of
$70.0 million were up 4.0% on a year-over-year basis.
FactSet added 25 new clients this quarter taking the tally to a
total of 2525. The company retained 92% of clients, amounting to
95% of the Annual Subscription Value (ASV).
The company’s ASV increased $2.0 million and reached a total
figure of $890.0 million on Nov 30, 2013. Nearly 82.2% of this
total figure is generated from buy-side clients, with the rest
coming from sell-side firms performing functions like Mergers &
Acquisition advisory work and equity research.
Now coming to the operational metrics, FactSet reported a 5.9%
increase in operating expenses while as a percentage of revenues
its operating expenses increased 16 basis points (bps) during the
quarter to 66.5%.
FactSet’s operating income increased 5.1% from the year-ago
quarter to $74.7 million while its margins contracted 16 bps
primarily due to the Revere Data acquisition Adjusted net income
during the quarter came in at $53.3 million or $1.22 per share
which improved from $49.8 million or $1.11 per share.
FactSet exited the quarter with $174.0 million in cash and cash
equivalents, compared with $196.6 million in the previous quarter.
The company has no long-term debt.
FactSet generated free cash flow of $53.0 million during the
quarter and purchased 530K shares for $57.8 million. The company
also paid $15.1 million as dividends. Moreover, FactSet has
approved a $300 million share buyback program in addition to the $5
million that the company already has.
Guidance
For the second quarter of fiscal 2014, FactSet expects revenues
in the range of $225.0 million to $228.0 million. Apart from this,
the operating margin is expected to range between 32.6% and 33.6%,
reflecting a 30 bps reduction due to the Revere acquisition and a
50 bps reduction due to the recent acquisition of 60.0% in Matrix
Data Limited. While the GAAP earnings per share should range
between $1.20 and $1.23 (GAAP diluted earnings per share presumes
the enforcement of U.S. Federal R&D tax credit). The Zacks
Consensus Estimate for the second quarter is pegged at $1.26.
Our Take
Although FactSet’s first-quarter results lagged the Zacks
Consensus Estimate, the year-over-year comparisons were favorable.
Moreover, ASV increased compared to the year-ago quarter and
FactSet added a good number of clients. However, the company
provided a tepid guidance for the forthcoming quarter. The fresh
buyback program will also support its earnings per share in the
long run and will also invoke shareholders’ loyalty.
FactSet continues to launch products and applications across its
segments with special emphasis on financial services to gain more
customers. Moreover, the company’s acquisition of Revere Data and
the stake in Matrix Data will help it to deliver innovative
products to its clients and evolve as a global financial database
company. It will also help FactSet to maximize value for its
partners and provide customers with exclusive content sets.
Nonetheless, competition from Bloomberg L.P., Dow Jones &
Company Inc., MSCI Inc. (MSCI) and Thomson
Reuters, which are also coming up with substitute products at
competitive prices, is a headwind for the company.
FactSet carries a Zacks Rank #3 (Hold). Investors may consider
Stratasys Ltd. (SSYS) and
SanDisk Corp. (SNDK), both carrying a Zacks Rank
#2 (Buy).
FACTSET RESH (FDS): Free Stock Analysis Report
MSCI INC-A (MSCI): Free Stock Analysis Report
SANDISK CORP (SNDK): Free Stock Analysis Report
STRATASYS LTD (SSYS): Free Stock Analysis Report
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