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DST Systems shares fall 13.9 percent on earnings and ‘headwinds’

Chief executive Steve Hooley said that DST Systems has been investing significantly to protect its systems and customer data and that other headwinds would “pressure our results.”
Chief executive Steve Hooley said that DST Systems has been investing significantly to protect its systems and customer data and that other headwinds would “pressure our results.” The Kansas City Star

Shares of DST Systems Inc. fell 13.9 percent Thursday to their lowest closing price since mid-May after a disappointing earnings report.

Profits at the Kansas City-based company were down 22 percent in the second quarter, in part from an increase in its capital investments and from industry “headwinds,” according to the company.

DST earned $107.5 million, or $2.91 per share, compared with $137.8 million, or $3.34 per share, in the same quarter a year ago. Its stock fell $18.61 to $115.58.

Earnings in each quarter gained from the company’s continued sale of investments and assets, including shares DST owns in Boston-based State Street Corp.

Ignoring such gains and some other items, the company earned $51.4 million, compared with a similarly adjusted total of $49.5 million in the quarter a year ago.

In the announcement, chief executive officer Steve Hooley said the company had been investing significantly to “protect the integrity and security of the data on our systems, as well as maintain full regulatory compliance for DST and our customers.”

The company provides financial services to the mutual fund industry, pharmacy benefits claims services to the health care industry and similar services to other businesses.

Capital investments in the quarter totaled $40 million, compared with $27.2 million a year ago.

Moreover, Hooley said, the outlays will continue to contribute to forces that weigh on DST Systems’ earnings.

“While these investments, combined with industry headwinds and foreign exchange, continue to pressure our results, we maintain a strong balance sheet that provides us the leverage necessary to support our continued growth and value creation,” his statement said.

Hooley also said management holds a “cautious” outlook for the rest of this year, even as it remains confident in its plans and resources.

The earnings per share totals missed the consensus of analysts’ expectations for the first time since early 2014, analyst David Koning at Baird Equity Research told clients in a note. Revenue totals also were “a bit light,” the note said.

Revenues in the quarter totaled $694.5 million, compared with $679.5 million a year ago.

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

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