Fiserv Inc. ( FISV ) reported second-quarter earnings of 81 cents per share, which were in line with the Zacks Consensus Estimate. Earnings per share (excluding merger and integration costs, severance costs, amortization of acquisition-related intangible assets, tax impact of adjustments and gains related to the StoneRiver transaction) increased 7.6% from the year-ago quarter.
Revenues (excluding output solutions postage reimbursements and Open Solutions' deferred revenue adjustment) increased 3.2% year over year to $1.18 billion. Revenues, however, missed the Zacks Consensus Estimate of $1.24 billion. Internal revenue growth was 3% in the quarter.
This year-over-year increase was on account of robust growth registered by Fiserv's recurring revenue businesses such as card services and bill payments along with good performance from output solutions.
Source-wise, Product revenues increased 10.4% year over year to $202.0 million. Processing and services revenues increased 3.5% year over year to $1.05 billion.
Segment wise, Payments and Industry Products revenue increased 5.2% from the year-ago quarter to $591.0 million. Financial Institution Services revenue, on the other hand, increased 1% on a year-over-year basis to $596.0 million in the reported quarter.
Fiserv signed 72 new clients, which took the total number of clients for Mobiliti solution up to 1,900 at the end of the first quarter. Client demand for Popmoney solution continues to remain strong as Fiserv signed 75 new institutions in the quarter. During the quarter, Fiserv signed 88 electronic bill payment clients and 26 debit processing clients.
Fiserv continues to proceed rapidly with the Open Solutions integration. Open Solutions' primary product DNA has gained significant momentum as Fiserv won six new contracts in the reported quarter. Since the completion of the acquisition in Jan 2013, Fiserv has won 44 new contracts on the DNA platform.
During the quarter, the company launched Agiliti, a cloud-based retail bank technology solution. This solution, in turn, will enable new users as well as existing institutions to keep their technology costs to a minimum; rapidly bring products to market and enhance their digital experience, thereby providing better services to their respective customers. Agiliti is scheduled to go live in mid-2015.
Total expenses (cost of processing & services, cost of products and selling, general and administrative expense) as a percentage of revenues decreased 70 basis points (bps) from the year-ago quarter to 80.4%.
Operating margin (excluding mergers, severance costs and amortization of acquisition-related intangible assets) expanded 20 bps on a year-over-year basis to 30.6% in the quarter. The growth was primarily due to favorable revenue mix, scale leverage, higher operational effectiveness savings (including synergies from the Open Solutions acquisition) and higher termination fees.
Net income was $205.0 million or 81 cents per share versus $202.0 million or 75 cents reported in the year-ago quarter.
Fiserv, Inc - Earnings Surprise | FindTheBest
As of Jun 30, 2014, Fiserv had cash and cash equivalents of $329.0 million, up from $307.0 million at the end of the previous quarter. Long-term debt was $4.56 billion compared with $3.85 billion in the previous quarter. Fiserv repurchased 3.0 million shares for $168.0 million in the second quarter.
For fiscal 2014, adjusted revenues are expected to increase in the range of 4% to 5%. Adjusted internal revenues are expected to increase in the range of 4% to 4.5%.
Earnings per share are likely to be in the range of $3.31 to $3.37, representing yearly growth of 11% to 13%. The mid-point of this guidance range is below the Zacks Consensus Estimate of $3.35. The company expects adjusted operating margin to expand at least 50 bps for full year 2014.
Management expects the adjusted effective tax rate for the second half of the year to be higher than the first half. Moreover, the full year tax rate, excluding the tax impact from StoneRiver capital transactions, is expected to be under 35%.
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 U.S. Bank, TD bank and Bank of Ozarks.
The recent contracts with four of the leading credit unions in the world including Abri, MIDFLORIDA, Southeast Federal Credit union and Wauna are also a major positive.
The company's recent partnership with Visa ( V ) will allow Fiserv to offer debit EMV solutions for the Accel debit network. We believe that EMV-based card solutions have significant growth opportunities in the U.S. and this partnership will boost Fiserv's EMV offering, going forward.
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 the Open Solutions acquisition 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.
However, the back-end loaded guidance is expected to remain a concern in 2014. We also believe intensifying competition from the likes of Global Payments ( GPN ) and MasterCard Inc. ( MA ) remains a major headwind, going forward.
Currently, Fiserv has a Zacks Rank #2 (Buy).
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