Fidelity National Information Services Inc.
reported second quarter 2012 earnings (including stock-based
compensation) of 66 cents per share, exceeding the Zacks Consensus
Estimate by 9 cents. Earnings surged 23.1% from 54 cents reported
in year-ago quarter. The quarterly result was primarily driven by
strong margin expansion.
Revenues in the second quarter increased 3.1% year over year to
$1.46 billion, but fell marginally short of the Zacks Consensus
Estimate of $1.48 billion. Revenues increased 5.1% on an organic
basis, primarily driven by strong performance of the Financial
Solutions segment, which fully offset lackluster revenue growth in
the Payment Solutions segment and a decline in the International
Financial Solutions revenue climbed 9.1% year over year to
$563.4 million (7.8% organically), on the back of growth in account
processing and higher services revenue. Payment Solutions revenue
increased marginally to $630.6 million. Excluding the check-related
business, Payment Solutions revenue was up 2.7% year over year,
driven by continues increase in electronic transactions.
International Solutions revenue decreased 1.9% year over year to
$287.3 million, primarily due to unfavorable foreign exchange.
Organically, the segment grew 10.0% year over year in the quarter
based on strong performance from European processing and consulting
businesses, higher card issuance and usage in Brazil and continued
expansion in Asia.
Fidelity's second quarter was primarily driven
better-than-expected margin expansion, which fully offset the
sluggish revenue growth. Gross profit increased 10.7% year over
year to $535.8 million. Gross margin expanded 250 basis points
(bps) to 36.8% on the back of favorable business mix.
Selling, general & administrative expense (SG&A) surged
14.2% year over year to $193.4 million in the quarter. However,
operating income (including stock-based compensation) jumped 8.7%
year over year to $292.7 million, based on strong gross profit
base. Operating margin expanded 120 bps to 23.5% in the
Further, interest expense decreased 14.0% year over year to
$56.6 million in the second quarter. As a result, net income was up
18.1% year over year to $198.1 million in the quarter.
Fidelity's balance sheet continued to remain highly leveraged at
the end of second quarter of 2012. As of June 30, 2012, cash and
cash equivalents were $533.8 million compared with $481.7 million
in the previous quarter. Total debt (including the current potion)
at the end of the quarter was $4.86 billion compared with $4.84
billion in the previous quarter.
Fidelity generated $258.9 million in adjusted cash from
operations versus $203.8 million in the previous quarter. Free cash
flow (on an adjusted basis) increased to $178.4 million from $136.4
million in the previous quarter.
During the quarter, Fidelity paid $59.0 million in dividends and
repurchased 1.5 million shares for $50.0 million. Fidelity has
$950.0 million remaining for future share repurchase, and expects
to buy approximately 50 million shares every quarter for the
remainder of 2012.
For fiscal 2012, Fidelity continues to expect organic revenue
growth to range between 3% and 5%. EBITDA is expected to grow in
the range of 5%-7%, while margins are expected to expand by 40-80
The company expects the second half of 2012 to be much more
challenging in terms of margin expansion due to planned client
deconversion, tough year-over-year comparisons and lack of
visibility around Visa pricing plans.
Fidelity revised its earnings forecast for full year 2012. The
company now expects earnings in the range of $2.45-$2.55 (down from
previous guidance of $2.47-$2.57) for fiscal 2012. This includes a
charge of 7 cents related to the divestiture of the Healthcare
business during the quarter and 5 cents benefit related to
lower-than-anticipated effective tax rate.
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
long term. We also believe that Fidelity's expansion into emerging
markets such as Brazil, India and Asia-Pacific will drive organic
revenue growth going forward.
However, increasing consolidation in the banking sector,
challenging environment for the Payments Solutions business and
uncertain regulatory environment are the primary headwinds, in our
We maintain our Neutral recommendation on a long-term basis (for
the next 6 to 12 months), primarily due to a highly leveraged
balance sheet and intense competition from other major players such
Fiserv Inc. (
Currently, Fidelity has a Zacks #3 Rank, which implies a
short-term Hold rating (for the next 1-3 months).
FIDELITY NAT IN (FIS): Free Stock Analysis
FISERV INC (FISV): Free Stock Analysis Report
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