Dollar Financial Repurchases Notes

Last week, Dollar Financial Corp. (DLLR: 22.85 +0.01 +0.04%) announced the repurchase of $35.2 million worth of its 2.875% U.S. senior convertible notes due 2027 for $32.0 million in cash, or 91% of par value. This reduces the company’s annual cash interest expense by about $1.0 million and non-cash interest by about $1.8 million annually.

 

Dollar Financial now has $44.8 million remaining under the 2.875% U.S. senior convertible notes due 2027.

 

Dollar Financial’s fiscal second quarter (ended December 31, 2009) earnings came in at 60 cents per share, substantially ahead of the Zacks Consensus Estimate of 45 cents. This also compares favorably with the earnings of 54 cents in the year-ago quarter.

 

Results for the quarter were aided primarily by lower-than-expected expenses as a result of cost reduction initiatives across all of the company’s markets. However, falling consumer lending volumes and revenues as a result of ongoing economic difficulties and a tightening of the company’s lending standards were on the downside.

 

Over the last 30 days, 7 of the total 8 analysts covering the stock have lowered estimates for the fiscal third quarter (ended March 31, 2010), while no upward revisions were witnessed. Currently, the Zacks Consensus Estimate for fiscal third quarter is operating earnings of 35 cents per share, which would be down by 13.1% from the year-ago quarter. The absence of upward estimate revisions for the fiscal third quarter indicates a likelihood of downward pressure on the performance of the stock in the near term.

 

With respect to earnings surprises, the stock has been steady over the last four quarters, with all positive surprises. The average remained positive at 29.3%. This implies that Dollar Financial has surpassed the Zacks Consensus Estimate by 29.3% over that period.

 

We remain concerned about the risks related to Dollar Financial’s tax strategies, the extremely fragmented nature of its business and international dependence. However, solid liquidity, exposure to a somewhat recession-proof sector and cost containment measures will drive future growth.