Fiserv Inc. (
reported third quarter earnings of $1.56 per share, which
comfortably beat the Zacks Consensus Estimate by a nickel.
Earnings per share increased 23.8% from the year-ago quarter and
Revenues (excluding output solutions postage reimbursements and
Open Solutions deferred revenue adjustment) increased 9.5% year
over year but remained almost flat quarter over quarter at $1.14
billion. Revenues, however, missed the Zacks Consensus Estimate
of $1.22 billion.
Product revenues remained flat year over year but increased a
modest 1.1% sequentially to $185.0 million. However, processing
and services revenues increased 10.2% year over year but remained
almost flat quarter over quarter at $1.02 billion.
Internal revenue growth was 3.0% in the quarter. Payments and
Industry Products revenues (all internal) increased 4.7% from the
year-ago quarter but remained flat sequentially at $562.0
The strong year-over-year growth was driven by robust performance
from Debit (volume up 16.0%), Biller Solutions (transaction
volume up 10.0%) and e-bill transactions (up 5.0% year over
Fiserv signed 136 new clients, which took the total number of
clients for the Mobiliti solution up to 1,700 at the end of the
third quarter. Client demand for Popmoney solution continues to
remain strong as Fiserv signed 100 new institutions in the
quarter. During the quarter, Fiserv signed 71 electronic bill
payment clients and 38 debit processing clients.
Fiserv continues to proceed rapidly with Open Solutions
integration (acquired Jan 14, 2013). Open Solutions' primary
product DNA has gained significant momentum as Fiserv won 11 new
contracts in the third quarter.
Financial Institution Services segment revenues increased 14.0%
from the year-ago quarter but decreased 0.8% sequentially to
$585.0 million. Internal revenues increased 1.0% from the
year-ago quarter. The year-over-year growth was primarily due to
robust revenue contribution from Open Solutions acquisition.
Total expenses (cost of processing & services, cost of
products and selling, general and administrative expense) as a
percentage of revenues decreased 110 bps from the year-ago
quarter to 60.2%.
Operating margin (excluding mergers, severance costs and
amortization of acquisition-related intangible assets) expanded
70 basis points (bps) on a year-over-year basis to 30.5% in the
quarter. On a sequential basis, operating margin increased 10
The expansions were primarily driven by strong revenue growth
in the financial institution services segment, favorable product
mix and improving operational efficiency.
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Financial Institution Services operating margin increased 300 bps
from the year-ago quarter and 130 bps sequentially to 33.7%.
Payments and Industry Products operating margin declined a modest
10 bps from the year-ago quarter and 110 bps from the previous
quarter to 30.8%. The year-over-year decline resulted from a 60
bps negative impact from a client settlement. The decline was
also due to the negative impact of the
Bank of America (
bill payment contract renewal.
The Corporate and Other segment witnessed an operating loss of
$23 million, which deteriorated from $22.0 million loss incurred
in the year-ago quarter but remained flat sequentially.
As of Sep 30, 2013, Fiserv had cash and cash equivalents of
$321.0 million, slightly down from $320.0 million at the end of
the previous quarter. Long-term debt was $3.93 billion compared
with $3.95 billion in the previous quarter. Fiserv repurchased
2.0 million shares for $192.0 million in the third quarter.
For the fourth quarter of 2013, adjusted internal revenues are
expected to increase in the range of 4.0% to 5.0%, led by
stronger growth in the Payments segment. Lower corporate expense
in the fourth quarter of 2012 is expected to negatively impact
operating margins in the forthcoming quarter.
For full year 2013, Fiserv expects revenue growth to be more than
10.0% and adjusted internal revenue growth of approximately 3.0%.
Earnings per share are likely to be in the range of $5.94 to
$6.02 (earlier guidance range was $5.84 to $6.03), representing
yearly growth of 17.0% to 19.0% (earlier guidance range was
Fiserv forecasts free cash flow per share to be more than $6.55
per share. The company expects operating margin to expand in a
range of 30 to 50 bps for the full year. For 2013, Fiserv's
operational effectiveness goal remains at $60.0 million. The
company achieved 92.0% of this target in the first nine months of
Fiserv has expanded its foothold in the financial and payment
solutions business supported by its broad customer base and
various contract wins from the likes of Bank of America, TD bank
and American Electric Power and Humana.
Fiserv's diversified product portfolio and continued technology
upgrades are expected to boost its top-line growth. Higher
synergies (both top-line and cost) from Open Solutions
acquisitions and continuous contract wins by the DNA platform are
expected to drive growth over the next couple of years.
The company continues to add clients for its bill payment,
mobility and Popmoney solutions. Higher recurring revenues,
operational efficiencies and strong internal growth are expected
to result in solid earnings and free cash flow growth, which will
provide the company a competitive edge against the likes of
Global Payments (
MasterCard Inc (
Currently, Fiserv has a Zacks Rank #1 (Buy).