July 24, 2014

Investments boost DST earnings by 75 percent

The Kansas City-based company said it collected a $103.6 million gain, before taxes, from selling its remaining stake in a private company, which it did not name. Profits independent of such investment gains rose 6.9 percent.

Investments ballooned second-quarter profits by 75 percent at DST Systems Inc., the Kansas City-based company said Thursday.

DST earned $137.8 million, or $3.34 a share, in April, May and June, compared with $78.5 million, or $1.77 a share, a year ago.

Earnings benefited in part from $118.5 million in cash proceeds from investments unrelated to the company’s financial services and other businesses. For example, a $103.6 million gain, before taxes, came from selling DST’s remaining stake in a private company, which the announcement did not name.

David Koning, an analyst at Robert W. Baird & Co., said in a note to clients it likely was DST’s remaining shares of Asurion Corp.

The gain wraps up one of the most successful investment deals DST has managed. It gained a 37.4 percent stake in Asurion by agreeing in 2006 to merge its subsidiary called lock\line LLC into the Tennessee-based warranty management company.

The next year, DST had sold all but 6 percent of Asurion and collected more than $1 billion. In 2012, it sold another piece of a company, which again analysts said was Asurion, to post an additional $138.7 million gain before taxes.

CEO Steve Hooley declined to say during a call with analysts whether it was Asurion, but he said the sale was the last of DST’s ownership in the company.

Ignoring these and other one-time impacts on earnings, DST earned $49.5 million in the quarter, compared with a similarly adjusted $46.3 million profit a year earlier.

This increase reflected higher revenues in DST’s financial services business and health care processing services business. Total revenues were $679.5 million, compared with $657.1 million a year ago.

Income from the health care business was hurt by “an incremental $5.7 million” liability stemming from “processing errors involving certain pharmacy claim transactions when a specific set of circumstances were present,” DST’s announcement said.

During a call with analysts, Hooley said the size of the error was unusual.

“We have processing errors from time to time; that’s the nature of the business we’re in. This one was certainly larger than most we experience,” he said.

DST shares rose $1.31 Thursday, a 1.4 percent gain, to close at $93.06.

To reach Mark Davis, call 816-234-4372 or send email to Follow him on Facebook and Twitter at mdkcstar.

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