Why Donnelley Financial shares soared today
Donnelley Financial Solutions (NYSE:DFIN) saw its stock price soar during Wednesday’s session. It was up nearly 24% around 10:45 a.m. ET and by 2:30 p.m. ET it was still up about 19% at around $40 per share.
In what was a good day for the markets as a whole, Donnelley Financial received an additional boost with a strong second quarter earnings report released on Wednesday.
Donnelley Financial Solutions is a leading provider of risk management and data analytics solutions for public companies and investment management clients, which include some 700 Fortune 1000 companies. In short, it helps businesses to remain in compliance with Securities and Exchange Commission (SEC) regulations. It is the largest EDGAR filer in the world, filing approximately 160,000 documents through this SEC portal per year.
In the second quarter, Donnelley beat consensus estimates, posting net sales of $266 million, down 0.5% from a year ago, and net income of $46 million, up 7% year over year. Earnings per share (EPS) rose 15% year over year to $1.46. Analysts expected $221 million in revenue, $27 million in profit and $0.80 in EPS.
The company saw significant revenue gains in software solutions or its software-as-a-service (SaaS) offerings, which jumped 8% year-over-year. This increase reflects the company’s transition from print products to SaaS and technology services, which now represent the bulk of revenue.
“During the second quarter, we made continued progress towards becoming a software-centric company,” President and CEO Daniel Lieb said in a statement. “Total software sales increased nearly 8% from the second quarter of 2021 and represented 26.9% of total second quarter net sales, an increase of 200 basis points over the second quarter sales mix. quarter of last year.” He added that recurring compliance products saw sales increase 13% in the quarter.
The transition also had the effect of lowering expenses, with net cost of sales of $112 million, down 5% year-over-year. For the first six months, the net cost of sales is down 7%. This helped the company increase its free cash flow by 48% year over year to $31 million.
Donnelley is down about 15% year-to-date, a far cry from last year when it was up 178%. Donnelley enjoyed a banner year last year for special purpose acquisition company (SPAC) transactions, which involves a lot of filing and compliance. As the SPAC market cooled, Donnelley was able to perform quite well due to its focus on becoming software-centric and its cost controls. It is also cheap with a price/earnings ratio (P/E) of 8.
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Dave Kovaleski has no position in the stocks mentioned. The Motley Fool has no position in the stocks mentioned. The Motley Fool has a disclosure policy.
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