A month has gone by since the last earnings report for Total System Services, Inc. . Shares have added about 6.4% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock’s next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Total System's Q4 Earnings Beat on Higher Revenues
Total System Services’ fourth-quarter 2016 operating earnings per share (EPS) of $0.69 (adjusting for share-based compensation) beat the Zacks Consensus Estimate of $0.65. Also, it improved 30.2% year over year.
Better-than-expected results were mainly due to higher revenues, partially offset by higher expense. Except international services, net revenue increased in all other segments.
Net income attributable to the company’s common shareholders came in at $74 million or $0.40 per share, compared to $82.8 million or $0.45 per share in the prior-year quarter.
Total revenue of $1.13 billion came below the Zacks Consensus Estimate of $1.14 billion. However, the top line soared 57.9% year over year.
For full-year 2016, revenues surged 50% year over year to $4.17 billion. The Zacks Consensus Estimate was $4.18 billion.
Total System reported a year-over-year jump of 67.2% in total expenses to $1 billion in the quarter. The rise was driven by higher cost of services as well as selling, general and administrative expenses.
Segments Results
North America Services
Net revenue inched up 1.4% year over year to $304.5 million in fourth-quarter 2016. Total transaction for this segment was $4.48 billion in the reported quarter, up 5% year over year.
Operating income of $117.3 million climbed 12.6% year over year. Operating margin of 38.53% increased from 34.69% in the year-ago quarter.
International Services
For this segment, net revenue decreased 11.6% year over year to $77.1 million in the quarter. The segment recorded total transaction of $742.1 million, reflecting a rise of 12.2% on a year-over-year basis.
Operating income plunged 28.9% year over year to $15.2 million. Operating margin declined to 19.74% from 24.54% in the prior-year quarter.
Merchant Services
Net revenue increased significantly year over year to $254 million. Point-of-sales transactions increased 4.2% to $1.12 billion. Dollar sales volume for this segment grew significantly year over year to $28.71 billion.
Operating income surged significantly year over year to $88.5 million. Operating margin improved to 34.86% from 27.06% in the year-ago quarter.
NetSpend
Net revenue increased 11.5% year over year to $160.6 million. Gross dollar volume for this segment was $6.58 billion in the quarter, up 15.6% year over year.
Operating income grew by 21.7% year over year to $34.8 million. Operating margin increased to 21.69% from 19.87% in the prior-year quarter.
Financial Update
Total assets increased to $6.37 billion as of Dec 31, 2016 from $3.88 billion at year-end 2015. Total shareholder’s equity climbed to $2.10 billion as of Dec 31, 2016 from $1.84 billion at the end of 2015.
Net cash from operations was $717.9 million for 2016 as against $600.2 million in 2015. Free cash flow totaled $575.3 million as of Dec 31, 2016 compared with $396.9 million in the year-ago period.
Outlook 2017
Total System provided financial guidance for full-year 2017. Total revenue on a GAAP basis is expected in the range of $4.75 billion–$4.85 billion, reflecting an increase of 14–16%. On a non-GAAP basis, net revenue is anticipated in the range of $3.28 billion–$3.38 billion, reflecting a rise of 8–11%.
GAAP EPS is projected in the range of $2.14–$2.21, representing a rise of 23–28%. Adjusted EPS attributable to the company’s common shareholders is estimated in the range of $3.05–$3.15, reflecting an increase of about 9–12%.
North America Services – This segment will be combined with International segment as part of the company’s new segment – Issuer Solutions – in 2017. However, on a standalone basis, the company expects net revenue growth to be in the range of 5–7% for the year. Margin is estimated to expand by about 100 bps.
International Services – On n a standalone basis, the company expects a constant currency growth rate in the range of 5–7% with margin improvement of more than 100 bps constant currency.
Issuer Solutions – Net revenue growth is expected in the range of 5–7% (constant currency). Current pro forma adjusted segment operating margin is projected in the range of 34–35%, to expand by more than 100 bps in 2017.
Merchant Service – The company expects net revenue to grow in the 7–9% range. Margin is expected to expand by about 50 bps in 2017. Management noted that it is in talks to purchase an additional 10% of the Central Payment (CPAY) joint venture in February 2017. This purchase would bring Total System’s ownership to 85%. It also stated that CPAY continues to deliver strong double-digit growth to the company’s direct business.
NetSpend – Net revenue growth is anticipated in the range of 3–5% range for the year. Excluding the negative impact of the CFPB rules, the growth rate would be in the range of 6–8%. The company expects the segment’s margin to be in the 19–21% range for full-year 2017, with the reduced margin profile in the second half of the year as the CFPB affects in the third and fourth quarters. Management also noted that as the prepaid market matures, NetSpend's growth is likely to remain slow to some extent on a core organic basis.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates flatlined during the past month. There have been two revisions higher for the current quarter compared to two lower.
VGM Scores
At this time, Total System's stock has a nice Growth Score of 'B', though it is lagging a lot on the momentum front with an 'F'. However, the stock was allocated a grade of 'B' on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregte VGM Score of 'B'. If you aren't focused on one strategy, this score is the one you should be interested in.
Zacks' style scores indicate that the company's stock is suitable for value and growth investors.
Outlook
The stock has a Zacks Rank #2 (Buy). We are looking for an above average return from the stock in the next few months.
Image: Bigstock
Why Is Total System (TSS) Up 6.4% Since the Last Earnings Report?
A month has gone by since the last earnings report for Total System Services, Inc. . Shares have added about 6.4% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock’s next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Total System's Q4 Earnings Beat on Higher Revenues
Total System Services’ fourth-quarter 2016 operating earnings per share (EPS) of $0.69 (adjusting for share-based compensation) beat the Zacks Consensus Estimate of $0.65. Also, it improved 30.2% year over year.
Better-than-expected results were mainly due to higher revenues, partially offset by higher expense. Except international services, net revenue increased in all other segments.
Net income attributable to the company’s common shareholders came in at $74 million or $0.40 per share, compared to $82.8 million or $0.45 per share in the prior-year quarter.
Total revenue of $1.13 billion came below the Zacks Consensus Estimate of $1.14 billion. However, the top line soared 57.9% year over year.
For full-year 2016, revenues surged 50% year over year to $4.17 billion. The Zacks Consensus Estimate was $4.18 billion.
Total System reported a year-over-year jump of 67.2% in total expenses to $1 billion in the quarter. The rise was driven by higher cost of services as well as selling, general and administrative expenses.
Segments Results
North America Services
Net revenue inched up 1.4% year over year to $304.5 million in fourth-quarter 2016. Total transaction for this segment was $4.48 billion in the reported quarter, up 5% year over year.
Operating income of $117.3 million climbed 12.6% year over year. Operating margin of 38.53% increased from 34.69% in the year-ago quarter.
International Services
For this segment, net revenue decreased 11.6% year over year to $77.1 million in the quarter. The segment recorded total transaction of $742.1 million, reflecting a rise of 12.2% on a year-over-year basis.
Operating income plunged 28.9% year over year to $15.2 million. Operating margin declined to 19.74% from 24.54% in the prior-year quarter.
Merchant Services
Net revenue increased significantly year over year to $254 million. Point-of-sales transactions increased 4.2% to $1.12 billion. Dollar sales volume for this segment grew significantly year over year to $28.71 billion.
Operating income surged significantly year over year to $88.5 million. Operating margin improved to 34.86% from 27.06% in the year-ago quarter.
NetSpend
Net revenue increased 11.5% year over year to $160.6 million. Gross dollar volume for this segment was $6.58 billion in the quarter, up 15.6% year over year.
Operating income grew by 21.7% year over year to $34.8 million. Operating margin increased to 21.69% from 19.87% in the prior-year quarter.
Financial Update
Total assets increased to $6.37 billion as of Dec 31, 2016 from $3.88 billion at year-end 2015. Total shareholder’s equity climbed to $2.10 billion as of Dec 31, 2016 from $1.84 billion at the end of 2015.
Net cash from operations was $717.9 million for 2016 as against $600.2 million in 2015. Free cash flow totaled $575.3 million as of Dec 31, 2016 compared with $396.9 million in the year-ago period.
Outlook 2017
Total System provided financial guidance for full-year 2017. Total revenue on a GAAP basis is expected in the range of $4.75 billion–$4.85 billion, reflecting an increase of 14–16%. On a non-GAAP basis, net revenue is anticipated in the range of $3.28 billion–$3.38 billion, reflecting a rise of 8–11%.
GAAP EPS is projected in the range of $2.14–$2.21, representing a rise of 23–28%. Adjusted EPS attributable to the company’s common shareholders is estimated in the range of $3.05–$3.15, reflecting an increase of about 9–12%.
North America Services – This segment will be combined with International segment as part of the company’s new segment – Issuer Solutions – in 2017. However, on a standalone basis, the company expects net revenue growth to be in the range of 5–7% for the year. Margin is estimated to expand by about 100 bps.
International Services – On n a standalone basis, the company expects a constant currency growth rate in the range of 5–7% with margin improvement of more than 100 bps constant currency.
Issuer Solutions – Net revenue growth is expected in the range of 5–7% (constant currency). Current pro forma adjusted segment operating margin is projected in the range of 34–35%, to expand by more than 100 bps in 2017.
Merchant Service – The company expects net revenue to grow in the 7–9% range. Margin is expected to expand by about 50 bps in 2017. Management noted that it is in talks to purchase an additional 10% of the Central Payment (CPAY) joint venture in February 2017. This purchase would bring Total System’s ownership to 85%. It also stated that CPAY continues to deliver strong double-digit growth to the company’s direct business.
NetSpend – Net revenue growth is anticipated in the range of 3–5% range for the year. Excluding the negative impact of the CFPB rules, the growth rate would be in the range of 6–8%. The company expects the segment’s margin to be in the 19–21% range for full-year 2017, with the reduced margin profile in the second half of the year as the CFPB affects in the third and fourth quarters. Management also noted that as the prepaid market matures, NetSpend's growth is likely to remain slow to some extent on a core organic basis.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates flatlined during the past month. There have been two revisions higher for the current quarter compared to two lower.
Total System Services, Inc. Price and Consensus
Total System Services, Inc. Price and Consensus | Total System Services, Inc. Quote
VGM Scores
At this time, Total System's stock has a nice Growth Score of 'B', though it is lagging a lot on the momentum front with an 'F'. However, the stock was allocated a grade of 'B' on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregte VGM Score of 'B'. If you aren't focused on one strategy, this score is the one you should be interested in.
Zacks' style scores indicate that the company's stock is suitable for value and growth investors.
Outlook
The stock has a Zacks Rank #2 (Buy). We are looking for an above average return from the stock in the next few months.