Fiserv (FISV) Lags Q3 Earnings & Revenue Estimates, Ups View

Fiserv, Inc. FISV reported disappointing third-quarter 2019 results, wherein the company’s earnings and revenues lagged the Zacks Consensus Estimate.

Adjusted earnings per share of $1.02 missed the consensus mark by a penny but increased on a year-over-year basis. Revenues of $3.13 billion lagged the consensus estimate by $688.6 million but improved more than 100% year over year.

Adjusted revenues of $3.62 billion increased 5% on a year-over-year basis. Internal revenue growth was 6% on a constant-currency basis, with First Data segment, Payments segment and Financial segment up 7%, 6% and 4%, respectively.

So far this year, shares of Fiserv have gained 42.8%, outperforming the 36.4% rise of the industry it belongs to and 21.8% increase of the Zacks S&P 500 composite.

 

Let’s check out the numbers in detail.

Revenues in Detail

Revenues at the First Data segment increased 2.2% year over year to $2.42 billion, on the back of solid performance in the former GBS segment and strength across its digital commerce, ISV Solutions, Clover and global merchant acquiring. Adjusted revenues of $2.17 billion grew 3.5% year over year.

Revenues at the Payments and Industry Products segment increased 9.7% year over year to $926 million. Adjusted revenues of $861 million grew 11.4% year over year. The upside was driven by solid performance of card services, electronic payments and output solutions businesses.

In the reported quarter, debit transaction grew in high single digits and total P2P transactions, including Popmoney and Zelle solutions, doubled on a year-over-year basis and went up 15% sequentially. Mobiliti ASP subscribers increased 14% to 9 million and Mobiliti business clients increased 18%. Zelle transactions nearly tripled, backed by the number of live clients, which doubled sequentially. The company signed 130 Zelle clients in the reported quarter (exceeding the combination of first two quarters of the year).

Revenues at the Financial Institution Services segment increased 3.8% year over year to $596 million. The upside was driven by the company’s account and item processing businesses.

Revenues at Total processing and services segment increased more than 100% year over year to $2.61 billion while product revenues grew more than 100% year over year to $520 million.

Fiserv, Inc. Revenue (TTM)

 

Fiserv, Inc. Revenue (TTM)

Fiserv, Inc. revenue-ttm | Fiserv, Inc. Quote

Operating Results

Adjusted operating income of $1.08 billion was up 10.2% from the year-ago quarter. Adjusted operating margin of 29.8% grew 130 basis points (bps) year over year, driven by increased revenue growth and some limited benefit from cost synergies, partially offset by the Elan acquisition.

Adjusted operating income at the First Data segment was $667 million, up 4.5% year over year. Adjusted operating margin improved 20 bps year over year to 30.7%. The uptick came on the back of strong revenue growth and cost containment, partially offset by foreign currency movements.

Adjusted operating income at the Payments and Industry Products segment was $309 million, up 15.7% year over year. Adjusted operating margin improved 150 bps year over year to 35.9%. The improvement can be attributed to additional revenue growth and reduction of last year's tax funded investments, which were partially offset by the impact of the Elan acquisition (completed on Oct 31).

Operating income at the Financial Institution Services segment totaled $196 million, up 4.8% year over year and operating margin of 32.9% improved 20 bps. The upside was driven by high-quality recurring revenue growth and operational efficiency.

Fiserv, Inc. Price, Consensus and EPS Surprise

 

Fiserv, Inc. Price, Consensus and EPS Surprise

Fiserv, Inc. price-consensus-eps-surprise-chart | Fiserv, Inc. Quote

Balance Sheet and Cash Flow

Fiserv exited third-quarter 2019 with cash and cash equivalents of $1.03 billion compared with $8.44 billion at the end of the prior quarter. Long-term debt at the end of the reported quarter was $22.12 billion compared with $13.75 billion at the end of the prior quarter.

The company generated $1.04 billion of net cash from operating activities in the reported quarter. Free cash flow was $1.70 billion. Capital expenditures were $221 million.

Fiserv reinstated its share repurchase program late in the third quarter and repurchased 341,000 shares in the quarter for $35 million. As of Sep 30, 2019, the company had 24 million shares remaining in its authorization.

2019 Guidance

Fiserv raised its guidance for full-year 2019. Adjusted earnings per share are now expected in the range of $3.98 to $4.02 (indicating 16-17% year-over-year growth) compared with the prior guided range of $3.39-$3.52 (which suggests 10-14% year-over-year growth). The current Zacks Consensus Estimate of $4.03 lies above the updated guided range.

The company now expects internal revenue growth of 6% compared with the prior guided range of 4.5-5%.

Adjusted operating margin is now anticipated to expand by nearly 100 bps compared with the prior guidance of 50 bps and free cash flow conversion is estimated around 115% compared with the prior guidance of more than 105%.

Zacks Rank & Stocks to Consider

Currently, Fiserv carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

A few better-ranked stocks in the broader Zacks Business Services sector are Global Payments GPN, Mastercard MA and Cardtronics CATM. While Global Payments sports a Zacks Rank #1, Mastercard and Cardtronics carry a Zacks Rank #2 (Buy).

Long-term expected EPS (three to five years) growth rate for Global Payments, Mastercard and Cardtronics is 17%, 15.9% and 4%, respectively.

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