DST Systems posts smaller profit and warns of challenging year ahead

DST Systems Inc. posted a smaller fourth quarter profit and warned investors that a rocky year on Wall Street promises a challenging year for the company.

The stock market has fallen quickly this year, and the Kansas City-based company provides data processing and other services to companies in the mutual fund, health care and other industries.

“We are pleased with our 2015 operating results and believe a number of the significant client wins and renewals executed during the year position us well as we head into 2016,” chief executive Steve Hooley said in the announcement.

“Notwithstanding the progress we are making across our business segments, early market indicators are showing a low growth environment for 2016 as continued global headwinds, market volatility and the impact of foreign exchange remain significant challenges,” Hooley said.

At the same time, DST said it signed a new customer for its sub-accounting business. Analyst Peter Heckmann at Avondale Partners LLC called it a significant win.

“We believe this is DST’s first material mutual fund servicing win in roughly 10 years and the largest sub-accounting win in the company’s history. With this win, DST expects to onboard 10 million subaccounts by the end of 2016 and 2.3 registered accounts by the end of 2017,” Heckmann wrote in a note to clients.

Heckmann also noted Hooley’s talk of headwinds but said “a portion of this” already was built into his forecasts. Heckmann rates DST shares as outperforming the market and said the recent earnings were higher than expected.

DST shares fell $5.40, or 5.2 percent, to finish Thursday at $99.08.

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The company still shoulders the costs of providing clients with security, meeting regulatory requirements and keeping up with “other essential infrastructure enhancements,” the announcement said. It said these “will pressure our performance” in 2016.

“We remain confident in the ability of our team to execute, achieve increased benefits from our recent acquisitions, contain costs and develop innovative new service offerings for our clients to drive results and create additional shareholder value,” Hooley added.

For the final three months of 2015, DST said it earned $67.8 million, or $1.94 per share. A year earlier, asset sales had ballooned profits in the quarter to $255.1 million, or $6.65 a share.

Profits still declined even after ignoring the asset sales in both quarters, as well as other one-time events that impacted earnings. On this basis, DST said it earned $58.4 million compared with an adjusted $66.4 million a year earlier.

Revenues rose in its customer communications business, were flat in its financial services business and down in its health care services operation. In total, revenues reached $723.3 million in the quarter, up 2.4 percent.

Earnings for all of 2015 were $358.2 million, or $9.83 a share, compared with $593.3 million in 2014.

Mark Davis: 816-234-4372, on Twitter @mdkcstar