FactSet (FDS) Beats Q2 Earnings Estimates, Ups '19 EPS View

FactSet Research Systems Inc. (NYSE:FDS) posted mixed second-quarter fiscal 2019, with earnings beating the Zacks Consensus Estimate but revenues missing the same.

Adjusted earnings per share (EPS) of $2.42 beat the consensus mark by 8 cents and increased 14.2% on a year-over-year basis. The upside was driven by higher revenues, improved margin, lower incentive tax rate and lower share count, which was partially offset by higher interest expenses.

We observe that shares of FactSet have increased 22.1% in a year’s time compared with the industry’s rise of 9.7%.

Revenues in Detail

Revenues of $354.9 million missed the consensus mark by $2 million but increased 5.9% year over year. The uptick was driven by higher sales of analytics, content and technology solutions (CTS) as well as wealth management solutions. Organic revenues grew 5.7% to $356.5 million. Region-wise, U.S. revenues climbed 6.8% to $223.2 million and international revenues improved 4% to $131.6 million.

FactSet Research Systems Inc. Revenue (TTM)

ASV Plus Professional Services

FactSet’s Annual Subscription Value (ASV) plus professional services was $1.44 billion at the end of the quarter, up 5.1% year over year. Organically, it increased 6% year over year.

Buy-side and sell-side ASV growth rates were 5.3% and 9.2%, respectively. Nearly 84% of organic ASV was generated by buy-side clients. The rest were derived from sell-side firms performing functions like mergers and acquisitions advisory work, equity research and capital markets services.

ASV generated from the United States was $890.5 million, up 5.8% from the prior-year quarter’s level. Internationally, ASV was $530.2 million, up 4.6% year over year.

FactSet added 108 clients in the reported quarter, taking the total number of clients to 5,405. Annual client retention was 91% of clients and more than 95% of ASV. At the end of the quarter, total employee count was 9,529, up 1.8% year over year.

Operating Results

Adjusted operating income came in at $118.2 million, up 11.5% from the year-ago quarter’s tally. Adjusted operating margin increased 180 basis points (bps) to 33.2%.

Selling, general and administration expenses increased 6% to $81.1 million. Total operating expenses increased 2.7% to $246.2 million.

Balance Sheet and Cash Flow

FactSet exited second-quarter fiscal 2019 with cash and cash equivalents of $218.3 million compared with $170.4 million in the previous quarter. Long-term debt at the end of the quarter was $574.8 million, flat from prior-quarter’s tally.

In the quarter, the company generated $99.2 million of cash from operating activities and spent $12 million in Capex. Free cash flow was $87.3 million compared with $36.8 million at the end of the previous quarter.

Share Repurchase and Dividend Payout

FactSet repurchased 214,945 shares for $44.1 million and paid dividends of $24.2 million during the reported quarter. The company still has $137.2 million under existing share repurchase program.

Fiscal 2019 Outlook

FactSet updated fiscal 2019 guidance for EPS and annual effective tax rate. The company anticipates adjusted EPS in the range of $9.50-$9.65 compared with the previous guidance of $9.45-$9.65. The midpoint ($9.58) of the updated range is higher than the Zacks Consensus Estimate of $9.54. The annual effective tax rate is expected between 17% and 18% compared with the earlier expectation of 17.5-18.5%.

The company continues to expect revenues between $1.41 billion and $1.45 billion, the mid-point ($1.43 billion) of which is lower than the Zacks Consensus Estimate of $1.44 billion.

Organic ASV plus professional services for fiscal 2019 is projected in the range of $75-$90 million. Adjusted operating margin is projected in the range of 31.5-32.5%.

Zacks Rank & Upcoming Releases

Currently, FactSet carries a Zacks Rank #3 (Hold).You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Investors interested in the broader Zacks Business Services sector are keenly awaiting first-quarter 2019 earnings reports from key players like Republic Services (NYSE:RSG) , Waste Management (NYSE:WM) and Waste Connections (NYSE:WCN) . While Waste Connections will release quarterly results on Apr 24, Republic Services and Waste Management will report on Apr 25.

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