Fidelity National Information Services Inc. (
reported third quarter 2013 earnings from continuing operations
of 74 cents per share, up 18.1% from the year-ago quarter, and
beat the Zacks Consensus Estimate by 13 cents.
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Revenues increased 4.5% year over year (5.0% organic growth) to
$1.50 billion, which was in line with the Zacks Consensus
Estimate. The year-over-year increase was primarily driven by
strong performances from its Payment Solutions and International
Revenues from Financial Solutions increased 2.3% year over year
to $578.6 million (1.0% organic growth), driven by strong growth
in consulting revenues and digital delivery solutions.
International Solutions revenues jumped 8.9% year over year
(12.0% organic growth) to $321.7 million. The strong growth was
driven by robust performance across all regions. The strong
organic growth was driven by double-digit increase in revenues in
most of the regions.
The company continues to win clients in North America including
the likes of
Bank of Montreal (
, which chose Fidelity's check imaging software. The company's
solutions were selected by Northern Trust and Bremer Bank and its
agreements with SunTrust and ING Direct extended.
Fidelity stated increasing growth potential in Europe,
particularly strong opportunities in Central and Eastern Europe.
The company's solutions continue to maintain their popularity
among clients in Europe as well as Asia. This is quite evident
from the recent renewal by
and core processing upgrade wins in China and Thailand.
Payment Solutions revenues increased 4.4% on a year-over-year
basis to $601.7 million. The increase was driven by strong growth
in card loyalty programs, electronic bill payment services and
document output solutions.
Gross margin expanded 80 basis points (bps) to 37.6% due to
favorable business mix. Selling, general & administrative
expense (SG&A) as a percentage of revenues increased 10 bps
from the year-ago quarter.
Adjusted earnings before interest, tax, depreciation and
amortization (EBITDA) margin improved 50 bps on a year-over-year
basis to 31.3% in the third quarter. This reflects favorable
revenue mix and stringent cost management.
Operating margin expanded 80 bps from the year-ago quarter to
25.0%. Financial, Payment and International solutions operating
margins expanded 210 bps, 220 bps and 140 bps, respectively.
Net income margin from continuing operations increased 150 bps
from the year-ago quarter to 14.5%.
Balance Sheet & Cash Flow
Fidelity's balance sheet remained highly leveraged at the end of
the third quarter of 2013. As of Sep 30, 2013, cash and cash
equivalents were $811.6 million compared with $653.1 million in
the previous quarter. Total debt (including the current potion)
at the end of the quarter was $4.82 billion compared with $4.76
billion in the previous quarter.
Fidelity generated $311.1 million in cash from operations versus
$157.3 million in the previous quarter. Free cash flow increased
to $229.5 million from $115.3 million in the previous quarter.
The company repurchased 2.7 million shares for $125.0 million and
paid dividends worth $64.0 million.
For fiscal 2013, Fidelity expects revenues (reported and organic)
to grow in the range of 4.0% to 5.0%. Fidelity expects its 2013
earnings to be in the range of $2.80 to $2.87 (prior outlook was
$2.77 and $2.87) per share.
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 will drive growth over the
Moreover strong demand for its solutions such as Cardless Cash
Access solution and Active Analytics suite is expected to boost
its top-line growth in the near term. The company continues to
win contracts from banks and financial institutions in the
overseas market, which will further drive its market share going
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, competition from
, Global Payments and DST Systems is a major concern in the near
Currently Fidelity has a Zacks Rank #3 (Hold).