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Fiserv Beats on Q1 Earnings, Misses Revs - Analyst Blog

Fiserv Inc. ( FISV ) reported first-quarter earnings of 82 cents per share, which beat the Zacks Consensus Estimate by 8 cents. 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 22.4% from the year-ago quarter.

Revenues

Revenues (excluding output solutions postage reimbursements and Open Solutions' deferred revenue adjustment) increased 6.3% year over year to $1.15 billion. Revenues, however, missed the Zacks Consensus Estimate of $1.22 billion. Internal revenue growth was 6.0% in the quarter.

Product revenues increased 11.3% year over year to $207.0 million. Processing and services revenues increased 6.3% year over year to $1.03 billion.

Payments and Industry Products revenues increased 8.7% from the year-ago quarter to $590.0 million. Internal revenues increased 8.0% from the year-ago quarter. The strong year-over-year growth was driven by robust performance from Debit (volume up 11.0%) and Biller Solutions (transaction volume up 6.0%).

Fiserv signed 51 new clients, which took the total number of clients for Mobiliti solution up to 1,851 at the end of the first quarter. Client demand for Popmoney solution continues to remain strong as Fiserv signed 63 new institutions in the quarter. During the quarter, Fiserv signed 82 electronic bill payment clients and 30 debit processing clients.

Fiserv continues to proceed rapidly with Open Solutions integration. Open Solutions' primary product DNA has gained significant momentum as Fiserv won seven new contracts in the reported quarter. Since the completion of acquisition in Jan 2013, Fiserv has won 40 new contracts on the DNA platform.

Financial Institution Services segment revenues increased 3.8% from the year-ago quarter to $600.0 million. Internal revenues increased 3.0% from the year-ago quarter. The year-over-year growth was primarily due to robust revenue contribution from the Open Solutions acquisition.

Margins

Total expenses (cost of processing & services, cost of products and selling, general and administrative expense) as a percentage of revenues decreased 320 basis points (bps) from the year-ago quarter to 83.6%.

Operating margin (excluding mergers, severance costs and amortization of acquisition-related intangible assets) expanded 130 bps on a year-over-year basis to 29.7% in the quarter.

The strong growth was driven by 240 bps operating margin expansion in Financial Institution Services. The significant growth was primarily due favorable revenue mix, scale leverage, higher operational effectiveness savings (including synergies from the Open Solutions acquisition) and higher termination fees.

The Corporate and Other segment witnessed an operating loss of $23.0 million, which was almost flat the year-ago quarter.

Fiserv achieved $17.0 million of operational effectiveness savings in the quarter.

Balance Sheet

As of Mar 31, 2014, Fiserv had cash and cash equivalents of $307.0 million, down from $400.0 million at the end of the previous quarter. Long-term debt was $3.85 billion compared with $3.76 billion in the previous quarter. Fiserv repurchased 6.1 million shares for $351.0 million in the first quarter.

Guidance

For fiscal 2014, adjusted revenues are expected to increase in the range of 4.0% to 5.0%. Adjusted internal revenues are expected to increase in the range of 4.0% to 4.5%.

Earnings per share are likely to be in the range of $3.28 to $3.37, representing yearly growth of 10.0% to 13.0%. The mid-point of this guidance range is almost in line with the Zacks Consensus Estimate of $3.33.

Fiserv forecasts free cash flow per share to be up at least 10% to more than $3.65 per share. The company expects operating margin to expand at least 50 bps for the full year. For 2014, Fiserv's operational effectiveness goal remains at $60.0 million.

Our Take

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 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 #3 (Hold).

FISERV INC (FISV): Free Stock Analysis Report

GLOBAL PAYMENTS (GPN): Free Stock Analysis Report

MASTERCARD INC (MA): Free Stock Analysis Report

VISA INC-A (V): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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