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Alliance Data Systems Corporation (ADS - Analyst Report) reported adjusted earnings of $2.23 per share in the fourth quarter of 2013. Earnings surpassed the Zacks Consensus Estimate by 2.8% and were 30% above the year-ago figure.

Including amortization of purchased intangibles of $32.3 million, non-cash interest expenses of $11.7 million and an income tax benefit of $20.2 million, Alliance Data reported net income of $118 million or $1.79 per share in the quarter. This compared favorably with $83.6 million or $1.27 per share in the year-ago period.

Alliance Data posted better-than-expected results based on strong performances across all its segments.

Full-Year Highlights

For full year 2013, Alliance Data delivered adjusted earnings of $9.40 per share on revenues of $4.32 billion. While the top line improved 19%, the bottom line moved up 14.6% year over year. Earnings were in line with the Zacks Consensus Estimate.

Operational Performance

During the quarter under review, Alliance Data generated revenues of $1.14 billion. Revenues were up 17% year over year, driven by double-digit increase across all the segments. The top line was almost in line with the Zacks Consensus Estimate.

Operating expenses escalated nearly 18% year over year to $891.3 million in the fourth quarter of 2013, primarily due to 16.5% increase in cost of operations and 27.2% increase in provision for loan losses.

Fourth-quarter adjusted Earnings before Interest Tax Depreciation and Amortization (EBITDA) were $321 million, up 15.9% year over year. The upside was aided by improvement in all three segments.

Operating income of Alliance Data increased 15.3% year over year to $249.8 million in the quarter.

Segment Update

LoyaltyOne: Segment revenues totaled $245.1 million, up 13% year over year.

Adjusted EBITDA was $67.5 million, up 19% from the year-ago quarter.

During the reported quarter, operating income increased 21% year over year to $60 million.

AIR MILES’ reward miles issued increased 12% in the quarter.

Epsilon: Segment revenues were $374.6 million in the fourth quarter, up 28% year over year.

Adjusted EBITDA was $93.3 million in the fourth quarter, up 34% year over year.

Fourth-quarter operating income was $52.1 million, up 37% from the year-ago period.

Private Label Services and Credit: Revenues from the segment came in at $526.4 million, up 13% year over year.

Adjusted EBITDA was $179.8 million in the quarter, up 1% year over year.

Fourth-quarter operating income improved 1.3% year over year to $164.1 million.

Financial Update

Alliance Data exited 2013 with cash and cash equivalents of $969.8 million, up 8.6% from the 2012-end level.

Debt declined 1.9% to $2.80 billion at 2013-end from $2.85 billion reported at 2012-end.

Cash from operations in 2013 was $992.5 million, down 12.5% from 2012.

Capital expenditure increased to $135.4 million in 2013 from $116.4 million in the year-ago period.

2014 Guidance Raised

Revenue expectation was raised to $5.14 billion from $4.64 billion guided earlier. It translates into a year-over-year increase of 19% (8% organic growth).

Core EPS expectation is now raised to $12.20 from $12.00 (up 22% year over year).

In first-quarter 2014, the company expects to deliver core earnings of $2.70 per share on revenues of $1.25 billion.  While the top line represents 19% (9% organic) growth, the bottom line reflects a 6% improvement.

Our Take

Alliance Data managed to outperform the earnings expectation as well as its year-ago earnings.

The company is well poised for the upcoming quarters based on continued strong performances across the segments and a solid financial position. Revenues in the reported quarter exceeded the $1 billion mark for the fifth time. Core EPS also managed to outperform the guidance.

Continued focus on strategic acquisitions to grow inorganically, the national rollout of its dotz coalition loyalty program in Brazil, and inking of long-term deals are expected to drive solid numbers ahead for Alliance Data. Alliance Data has expanded its dotz loyalty program to two new Brazilian markets– Joao Pessao and Soracaba, taking the tally to 9.

Its continued share repurchase programs are also expected to boost its bottom line, thereby enhancing shareholders’ value.

Alliance Data currently carries a Zacks Rank #3 (Hold).

Results of Other Financial Service Transaction Providers

MasterCard Inc. (MA - Analyst Report) reported fourth-quarter 2013 operating earnings per share (EPS) of 57 cents. The results missed the Zacks Consensus Estimate of 60 cents but outpaced the year-ago quarter figure of 49 cents.

XOOM Corporation. (XOOM - Snapshot Report) reported fourth-quarter 2013 operating earnings per share (EPS) of 3 cents. The results outperformed the Zacks Consensus Estimate of loss of 3 cents.

Visa Inc.’s (V - Analyst Report) fiscal first-quarter 2014 (ended Dec 31, 2013) operating earnings of $2.20 per Class A common share comfortably surpassed the Zacks Consensus Estimate of $2.16 and the prior-year quarter figure of $1.93 per share.
 

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