Fidelity National Information Services Inc. (
reported first-quarter 2014 earnings from continuing operations
of 68 cents per share, up 9.9% from the year-ago quarter, which
beat the Zacks Consensus Estimate by 12 cents.
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Revenues increased 3.5% year over year (5.0% organic growth) to
$1.53 billion, almost in line with the Zacks Consensus Estimate.
The year-over-year increase was primarily driven by strong
performance from the International Solutions segment.
International Solutions revenues jumped 7.8% year over year
(13.0% organic growth) to $314.4 million, driven by growth across
Revenues from Financial Solutions increased 2.0% year over year
to $586.8 million (2.0% organic growth), driven by strong growth
in consulting revenues and digital delivery solutions.
Payment Solutions revenues increased 2.7% on a year-over-year
basis to $628.5 million, driven by growth in image and output
solutions and card solutions.
Gross margin contracted 100 basis points (bps) to 34.9% due to
unfavorable business mix.
Selling, general & administrative expense (SG&A) as a
percentage of revenues decreased 100 bps from the year-ago
Adjusted earnings before interest, tax, depreciation and
amortization (EBITDA) margin was almost flat on a year-over-year
basis to 31.8% in the quarter. Segment-wise, International
Solutions EBITDA margin decreased 150 bps, Payment Solutions
contracted 10 bps and Financial Solutions fell 90 bps on a
Operating margin remained almost flat on a year-over-year basis
to 22.7%. Higher margin financial solutions operating margin
declined 80 bps. Payment and International Solutions operating
margins contracted 150 bps and 130 bps, respectively.
Net income improved to $197.4 million compared with $182.3
million due to lower interest expense. Net income includes
adjustments related to contract settlement ($6.0 million) and
purchase price amortization ($36.5 million).
Balance Sheet & Cash Flow
Fidelity's balance sheet remained highly leveraged at the end of
the first quarter of 2014. As of Mar 31, 2014, cash and cash
equivalents were $737.7 million compared with $547.5 million in
the previous quarter. Total debt (including the current portion)
at the end of the quarter was $4.78 billion compared with $4.47
billion in the previous quarter.
Fidelity generated $22.6 million in cash from operations versus
$384.4 million in the previous quarter. Free cash flow decreased
to $158.2 million from $333.7 million in the previous quarter.
The company repurchased 3.2 million shares for $175.0 million
during the quarter.
For 2014, Fidelity expects organic revenues to grow in the range
of 4.5% to 6.5%. The company expects 2014 earnings in the range
of $3.05 to $3.16, an increase of 8.0% to 12.0% over 2013.
However, this is lower than the Zacks Consensus Estimate of
EBITDA is projected to grow at the 4.5% to 6.5% range for the
full year. Free cash flow is expected to approximate adjusted net
earnings for the year.
We believe that Fidelity's commanding position in the financial
services market, increasing international exposure, recurring
revenue model, diversified product portfolio, cost synergies from
acquisitions and a loyal customer base are significant positives.
Moreover, strong demand for its solutions is expected to boost
top-line growth in the near term. The company continues to win
contracts from banks and financial institutions internationally,
which will further drive its market share.
Additionally, the company's recent partnership with
to fight cybercrime is a significant positive, as it will expand
its presence in the fast growing cyber security market.
Fidelity's licensing agreement with
to offer EMV enabled debit cards to its NYCE Payments Network
partners is also a key growth catalyst. We believe that
increasing EMV adoption in the U.S. will drive Fidelity's
top-line growth in 2014
However, increasing consolidation in the banking sector,
challenging environment for the Payments Solutions business and
uncertain regulatory environment are the primary headwinds, in
our view. Moreover, intensifying competition from the likes of
is a major concern in the near term.
Currently, Fidelity has a Zacks Rank #3 (Hold).