Total System Services Inc.
) reported third-quarter 2012 operating earnings of 32 cents per
share, in line with the Zacks Consensus Estimate and a couple of
cents ahead of the year-ago quarter's earnings of 30 cents per
The company's earnings per share climbed 5.7%, while net
income attributable to shareholders edged up 3.7% to $60.3
million from $58.1 million in the prior-year period.
Results reflect consistent revenue growth in merchant and
international business segments and increase in overall
transaction volume and new accounts. Strict expense control also
boosted the results. These positives paved way for escalated
bottom line and improved operating cash flow. However, declined
revenue from North America, higher-than-expected SG&A and tax
expenses partly offset the upsides.
Total revenue for the reported quarter was $468.1 million, up
1.8% year over year and 2.3% on a constant currency basis.
However, the top line breezed past the Zacks Consensus Estimate
of $466.0 million. Reimbursable items declined 10.9% year over
year to $62.0 million.
Total System's top line also benefited from point-of-sale
(POS) transactions, excluding deconverted clients in indirect
business, which increased 9.5% on a year-over-year basis, while
sales volume from direct merchant business jumped 17.4%. Sales
volume improved 9.3% year over year excluding the impact of the
On geographical basis, quarterly revenues from North America
dipped 2.6% year over year to $237.6 million, while revenues from
international services witnessed a 2.8% year-over-year growth to
$102.7 million. Further, revenue from merchant acquiring services
grew 8.0% year over year to $132.7 million, whereas inter-segment
revenues improved 28.3% year over year to a negative $5.0
Additionally, as of September 30, 2012, total number of
accounts on file was 466.4 million, up 18.9% from 392.4 million
at end of the year-ago quarter. This upside was primarily driven
by new client growth, partially offset by a decline in internal
growth of existing clients.
Total System also reported a 7.7% year-over-year growth in
SG&A expenses, which stood at $61.5 million. However, cost of
services edged down 1.8% year over year to $315.7 million.
Alongside, non-operating expenses plunged 84.7% to $0.6
Meanwhile, operating income escalated 12.0% year over year to
$90.9 million in the reported quarter. Subsequently, operating
margin rose to 19.4% from 17.7% in the year-ago quarter.
At the end of the reported quarter, cash and equivalents
surged to $356.6 million from $316.3 million at the end of 2011.
Additionally, total assets increased to $1.97 billion and total
shareholders' equity climbed to $1.39 billion, from 2011-end.
Moreover, operating cash flow escalated 12.2% year over year to
During the reported quarter, Total System culminated a new
credit facility worth $500 million, which includes a 5-year term
loan of $150 million and a 5-year revolver of $350 million that
included nine banks. This new revolver, along with the free cash
flow is expected to provide more financial flexibility in making
investments and enhance shareholders' return.
Share Repurchase Update
Furthermore, Total System bought back 2.6 million shares for
$61.2 million during the reported quarter. Since September last
year, the company has repurchased 12.3 million shares for $227.0
In July 2012, the board of Total System expanded the current
share repurchase capacity up to 20 million from the prior 15
million, and also extended the expiration date to April 30, 2014.
Including the extended authorization, the company has 7.7 million
shares available for repurchases to date.
On October 1, 2012, Total System paid a regular quarterly
dividend of 10 cents per share to shareholders of record as on
September 20, 2012.
Additionally, on July 2, 2012, Total System paid a regular
quarterly dividend of 10 cents per share to shareholders of
record as on June 21, 2012.
Outlook for 2012
In July 2012, management at Total System had reiterated its
growth guidance for 2012, whereby the company expects total
revenue to grow by 0-2% to a range of $1.81-1.85 billion.
Revenues before reimbursable items are expected to be in the
range of $1.57-1.62 billion, up 2-5% from 2011.
Operating earnings are expected to increase 8-12% to a range
of $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. Based on its influential contracts, management expects to
achieve the higher-end of its guidance in all growth metrics.
Overall, Total System's slow but steady fundamental
performance along with disciplined expense management and
improving cash flow warrant an optimistic view on the company's
growth in the near term. However, inadequate diversified growth
and vulnerability to increased competition from dominant players
Heartland Payment Systems Inc.
Wright Express Corp.
) are some lingering concerns.
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 healthy performances 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.
HEARTLAND PAYMT (HPY): Free Stock Analysis
TOTAL SYS SVC (TSS): Free Stock Analysis
WRIGHT EXPRESS (WXS): Free Stock Analysis
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