Zacks_Analysts' Blog : Mixed 1Q for Lender Processing - Analyst Blog

Lender Processing Services Inc. (LPS) reported first-quarter 2011 adjusted earnings per share of 81 cents, in line with the Zacks Consensus Estimate and at the lower end of the company's guidance range of 81 cents to 84 cents. Results were a penny above the prior-year quarter’s earnings.

On a GAAP basis, earnings per share were 63 cents, down from 75 cents recorded in the year-earlier quarter. Lender Processing recorded total revenue of $556.2 million in the quarter under review, down 6.1% year over year. Reported revenue lagged the Zacks Consensus Estimate of $582 million.

Technology, Data and Analytics Segment (TD&A)

First-quarter revenues for the TD&A segment were $199.2 million, up 11.0% year over year. Mortgage processing revenues of $102.3 million increased 4.8% year over year. Other TD&A revenues grew 18.4% year over year to $96.9 million driven by strong growth in other software and services offerings as well as higher Desktop revenues.

Adjusted Operating income for the segment was $58.0 million, up 7.6% year over year. The upside in the segment’s operating income was attributable to higher contributions from Mortgage Processing and Desktop businesses.

Loan Transaction Services (LTS)

First-quarter revenues for the LTS segment declined 13.7% year over year to $358.4 million. The downturn in the segment’s revenues was due to deceases of 6.4% in revenues from Loan Facilitation Services and 17.7% in revenues from default services deceases. 

The performance at the Default Services segment was hit by continued delays in the initiation of foreclosure proceedings in the industry. In the reported quarter, loan facilitation and default services recorded revenues of $137.3 million and $221.1 million, respectively.

Overall operating income for the segment declined 10.4% to $88.5 million mainly due to lower income in Default Services, partly compensated by higher contributions from Loan Facilitation Services.

Financial Position

At quarter end, cash balance of the company was $4.8 million while outstanding debt was $1.1 billion. During the quarter, company repurchased 2.5 million shares for $83.9 million.

Outlook

For the second quarter of 2011, management expects adjusted earnings per share to be within 79 cents to 82 cents. For full-year 2011, management expects adjusted earnings in the range of $3.57 to $3.64 (previously $3.74 to $3.81) per share. Management expects revenues to decline in the mid single-digit range year over year in 2011.

Our Take

We expect estimates to move down in the coming days, based on a cut in the earnings outlook. Lender Processing expects market conditions in its origination and default businesses as well as the broader economy to remain challenging. The company currently retains the Zacks #4 Rank, which translates into a short-term Sell rating. We are also maintaining our long-term Neutral recommendation on the stock.

One of Lender Processing’s primary competitors, FTI Consulting Inc. (FCN) will report its first quarter earnings later this week.