Why DFC Global Corp. Shares Were Scrapped

A confluence of problems causes DFC Global to badly miss its second-quarter and full-year earnings estimates. Is this a buying opportunity or a reason to stay away?

Jan 31, 2014 at 1:59PM

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of DFC Global (NASDAQ:DLLR), a company that provides financial services such as pawn loans and check cashing to underbanked consumers, plummeted as much as 28% after reporting its second-quarter financial results.

So what: For the quarter, DFC Global reported net revenue of $262.3 million, a 10.4% decline from the year-ago period, which the company blamed on an ongoing regulatory transition in the United Kingdom, weaker gold prices, and a weaker Canadian dollar, which impacts in currency translation of its most profitable business, also located in Canada. Total profit fell more than 90% to just $0.04 per share from $0.56 in the year-ago quarter. By comparison, Wall Street anticipated EPS of $0.19 for the quarter. Looking ahead, DFC Global dramatically reduced its full-year EBITDA and EPS guidance, and now anticipates reporting a profit of $0.35-$0.80 from prior guidance of $0.65-$1.27.

Now what: Yuck! You would seriously be hard-pressed to find anything that went right for DFC Global during the quarter. It was negatively affected by foreign-currency translation, lower gold prices, industry changes in the U.K., and excluding a one-time settlement would have seen its loan-loss provision for unsecured loans rise as well! The only positives I can wring out of this report are the 28% and 37.7% growth witnessed in Poland and Spain. Beyond that, I have no reason to believe this weakness was a one-quarter occurrence and would suggest sticking to the sidelines.

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Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

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