Total System Services Inc.
(
TSS
) reported first-quarter 2012 operating earnings of 30 cents per
share, in line with the Zacks Consensus Estimate but a nickel
higher than the year-ago quarter.
Earnings per share surged 18.2%, while net income attributable
to shareholders increased 15.6% to $56.4 million from $48.8 million
in the prior-year period.
Results reflect consistent growth in revenues across all
business segments and increase in overall transaction volume and
new accounts. However, higher-than-expected cost of services and
selling, general and administrative (SG&A) expenses along with
higher taxes partly offset the revenue growth.
Total revenue for the reported quarter was $461.2 million, up
7.4% year over year and 7.6% on a constant currency basis,
recording an organic growth of 7.7%. Top line also surpassed the
Zacks Consensus Estimate of $445.0 million. Reimbursable items
inched down 1.2% year over year to $66.0 million.
Total System's top line also benefited from strong same client
transaction growth in the card issuer processing business that rose
14.4% over prior-year quarter. Besides, on year-over-year basis,
point-of-sale (POS) transactions, excluding deconverted clients in
our indirect business, climbed 11%, while sales volume from direct
merchant business escalated 20.9%.
On geographical basis, quarterly revenues from North America
increased 4.4% year over year to $240.6 million, while revenues
from international services witnessed a 10.6% year-over-year growth
to $100.4 million. Besides, revenue from merchant acquiring
services increased 8.4% year over year to $125.5 million, while
inter-segment revenues improved 30.0% year over year to a negative
$5.3 million.
Additionally, as of March 31, 2012, total number of accounts on
file was 415.9 million, up 16.6% from 356.8 million at end of the
year-ago quarter. The escalation was primarily driven by new client
growth and internal growth of existing clients.
Total System also reported a 5.8% year-over-year growth in
SG&A expenses, which stood at $58.1 million. Alongside, cost of
services increased 5.6% year over year to $318.3 million.
Meanwhile, operating income escalated 16.2% year over year to $84.8
million in the reported quarter. However, non-operating expenses
declined by 44.4% to $405.0 million.
Financial Update
At the end of the reported quarter, cash and equivalents surged
to $370.6 million from $316.3 million at the end of 2011.
Additionally, total assets increased to $1.90 billion and total
shareholders' equity rose to $1.37 billion, from 2011-end. However,
operating cash flow dipped 3.5% year over year to $98.6
million.
Business Update
In April 2012, Total System successfully extended its long-term
alliances with the UK-based
Royal Bank of Scotland plc
(
RBS
), US-based leading First Hawaiian Bank and another US-based
Veracity Payment Solutions to continue to offer card payment
solutions. Yesterday, the company bagged new contract from
Huntington Bancshares Inc.
(
HBAN
), while also including U.S.-based retail banker BancorpSouth in
the reported quarter, to process their credit card portfolios.
During the reported quarter, Total System also announced the
successful processing of
American Express Co.
's (
AXP
) OnePoint transactions through both of its front-end authorization
and capture as well as back-end clearing and settlement platforms.
Additionally, the company upgraded Moscow-based Tinkoff. Credit
Systems Bank (TCS) to PRIME 4, which is the latest version of the
company's card and merchant management solution. TCS will now use
PRIME 4 to manage the issuance of its
MasterCard Inc.
(
MA
) brand Tinkoff Platinum credit card.
Meanwhile, Total System entered into a strategic collaboration
with privately-held North America-based Pivotal Systems to offer
authorization, settlement and dispute resolution services. Pivotal
System processes more than $10 billion in annual revenues with a
wide network of over 60,000 merchants, 1,200 agents and 400
employees.
Dividend Update
On April 2, 2012, Total System paid a regular quarterly dividend
of 10 cents per share to the shareholders of record as on March 22,
2012.
On January 3, 2012, Total System paid a regular quarterly
dividend of 10 cents per share to the shareholders of record as on
December 15, 2011.
On October 25, 2011, the board of Total System had hiked its
regular quarterly dividend substantially by 42.9% to 10 cents per
share from 7 cents.
Outlook for 2012
Management reiterated its growth guidance for 2012, whereby
Total System expects total revenue to grow by 0-2% to a range of
$1.81-1.85 billion, while revenues before reimbursable items are
expected to be in the range of $1.57-1.62 billion, up 2-5% from
2011.
Besides, operating earnings are expected to increase 8-12% to be
within $238-243 million. On per share basis, operating earnings are
projected to be in the range of $1.26-1.28, climbing 10-12% over
2011.
Our Take
Overall, Total System's slow but steady fundamental performance
provides a vague picture regarding the stocks' direction in the
near term. However, inadequate diversified growth and declining
cash flow warrant slow improvement. Moreover, the company is also
vulnerable to increased competition from dominant players such as
Global Payments Inc.
(
GPN
) and
Alliance Data Systems Corp.
(
ADS
).
Nevertheless, increasing revenues across segments, growth in
contracts portfolio along with an enhanced capital position bode
well for the company. Optimistic guidance for 2012 also raises
expectations for good performance in the upcoming quarters. Hence,
we maintain a long-term Neutral stance on Total System with a Zacks
Rank #3, which implies a short-term Hold rating.
ALLIANCE DATA (
ADS
): Free Stock Analysis Report
AMER EXPRESS CO (
AXP
): Free Stock Analysis Report
GLOBAL PAYMENTS (
GPN
): Free Stock Analysis Report
HUNTINGTON BANC (
HBAN
): Free Stock Analysis Report
MASTERCARD INC (
MA
): Free Stock Analysis Report
ROYAL BK SC-ADR (RBS): Free Stock Analysis
Report
TOTAL SYS SVC (TSS): Free Stock Analysis Report
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