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Donnelly Financial Solutions Inc(DFIN-N)

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Why Shares of Donnelley Financial Solutions Are Plunging

Motley Fool - Tue Feb 21, 10:36AM CST

What happened

Shares of the financial software provider Donnelley Financial Solutions(NYSE: DFIN) traded almost 20% lower as of 11:11 a.m. ET today after the company reported earnings results for the fourth quarter of 2022 this morning that missed analyst estimates.

So what

Donnelley reported diluted earnings per share of $0.36 on total revenue of close to $168 million, both numbers that missed earnings estimates.

"We are pleased with the continued progress we made in the quarter toward becoming a software-centric company," Donnelley's CEO Daniel Leib said in an earnings statement. "Software solutions net sales made up 41% of fourth-quarter 2022 total net sales, a record level of software sales mix and an increase of approximately 930 basis points from last year's fourth-quarter sales mix."

Still, demand for the company's solutions, which include regulatory filing preparation software for private and public companies, as well as mutual funds, was challenged during the year. Full-year revenue fell 16%, although software solutions did manage to grow revenue slightly.

On a long-term basis, Donnelley hopes to grow total software solutions revenue in the mid-teen percentage range and hopes the division will make up 70% of its recurring revenue by 2026.

Now what

Although Donnelley disappointed the market with its quarterly results, it still has a strong balance sheet, with only $135 million of net debt at the end of 2022. Donnelley expects to generate $500 million of free cash flow between now and 2026.

The company is also repurchasing shares and making progress in its software division. The road might be challenging in the near term, but I don't think the challenges will be impossible for the company to overcome.

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Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool recommends Donnelley Financial Solutions. The Motley Fool has a disclosure policy.

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