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First Data (FDC) Lags Q3 Earnings Estimates, Cuts EPS View
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First Data Corporation reported disappointing third-quarter 2018 results wherein both earnings and revenues lagged the Zacks Consensus Estimate.
Adjusted earnings per share (EPS) of 35 cents missed the consensus mark by a penny and fell short of the year-ago figure by 5 cents. The bottom line was hurt by the normalization of adjusted effective tax rate and negative impact of 2 cents due to unfavorable foreign currency movements, which, however, were partially offset by improved operating performance.
Total segment revenues of $2.16 billion lagged the consensus estimate by $47 million. The top line was, however, up 4% year over year on a reported basis, 3% on a comparable accounting basis and 5% on an organic constant currency basis. Impacted by the adoption of ASC 606, consolidated revenues were down 22.9% year over year to $2.37 billion.
The top line benefited from strength across the company’s core merchant acquiring and card issuance businesses. ISV and Clover both performed strongly in the quarter. While ISV recorded more than 50% revenue growth, annualized volume on Clover was up 45% year over year. First Data is increasing its investments in both these businesses. International businesses recorded double-digit growth in the quarter.
Additionally, the company is expanding its digital merchant signup initiatives across its JV and other bank partners. Its direct channel continues to grow on the back of solid volume growth across RSA partners and several initiatives undertaken in the last two years.
On Sep 28, First Data completed the divestiture of its card processing businesses in Greece and Central/Eastern Europe (reported within GFS EMEA) for $440.07 million (€387 million). On Aug 16, the company closed the divestiture of its check remittance processing business (reported within GFS North America) for approximately $100 million.
So far this year, shares of First Data have gained 29.3% against 1.2% decline of the industry it belongs to.
Let’s check out the numbers in detail.
Segments in Detail
Global Business Solutions: This segment generated revenues of $1.38 billion, which grew 10% year over year on a reported basis, 7% on a comparable accounting basis and 6% on an organic constant currency basis. Growth was driven by strong geographical market results across North America, Latin America, Europe, Middle East and Africa (EMEA) and Asia Pacific (APAC) regions.
Strong growth in the ISV and agent businesses within the Partner Solutions channel, combined with good growth in the Direct channel boosted North American performance. Latin American revenues were driven by strong growth in Argentina and Brazil. While growth in the U.K.drove EMEA revenues, APAC revenues were driven by solid growth in India.
Global Financial Solutions: Revenues from this segment came in at $407 million, down 2% year over year on a reported basis,1% on a comparable accounting basisbut up 6% on an organic constant-currency basis. The improvement can be attributed to higher revenues from Latin America and APAC, partially offset by lower revenues from North America and EMEA.
Network & Security Solutions: This segment generated revenues of $367 million, down 7% year over year on a reported basis, 4% on a comparable accounting basisand 2% on an organic constant currency basis. The downside was due to lower revenues in Stored value network, Security and fraud and TeleCheck, which was partially offset by strength across EFT Network Solutions (which recorded mid-single digit year over year growth).
Operating Results
Total segment EBITDA came in at $815 million, up 4% year over year on a reportedbasis, 5% on a comparable accounting basis and 7% on an organic constant currency basis. Segment EBITDA margin of 37.8% improved50 basis points (bps) year over year on a comparable accounting basisand 60 bps on an organic constant currency basis.
Operating profit increased 13.9% year over year to $475 million. Operating profit margin climbed to 22% from 20% in the prior-year quarter.Total expenses declined 28.8% from the year-ago quarter to $1.89 billion.
First Data Corporation Price, Consensus and EPS Surprise
First Data exited the third quarter of 2018 with cash and cash equivalents of $601 million compared with $544 million at the end of the prior quarter. Long-term debt was $16.9 billion compared with $17.7 billion at the end of the prior quarter.
The company generated $671 million of cash from operating activities in the reported quarter. Free cash flow was $444 million. Capital expenditures were $162 million.
2018 Guidance
First Data revised its 2018 guidance for segment revenue growth, segment EBITDA growth and adjusted EPS.
For segment revenues, First Data expects reported constant currency growth of 6.3-7.3% compared with the previously guided growth range of 7-8%. Organic constant currency segment revenue growth range of 5-6% remains unchanged.
Segment EBITDA is now expected to register 7.6-9.6% growth on a reported constant currency basis compared with the previously guided growth range of 8-10%. Organic constant currency segment EBITDA growth range of 6.5-8.5% remains unchanged.
The revised guidance for segment revenue and segment EBITDA growth reflects the impact of divestitures completed in the third quarter of 2018.
Adjusted earnings are expected in the range of $1.38-$1.40 compared with$1.42-$1.47 guided earlier. The decline in EPS guidance primarily reflects the negative impact associated with foreign currency movements and a modest dilutive impact of two recent divestitures. The Zacks Consensus Estimate of $1.45 exceeds the currently guided range.
Full-year free cash flow guidance of more than $1.4 billion remains unchanged.
Investors interested in the broader Business Services sector are keenly awaiting third-quarter earnings reports of key players like Clean Harbors (CLH - Free Report) , Fiserv and WEX (WEX - Free Report) , all of which are scheduled to report on Oct 31.
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First Data (FDC) Lags Q3 Earnings Estimates, Cuts EPS View
First Data Corporation reported disappointing third-quarter 2018 results wherein both earnings and revenues lagged the Zacks Consensus Estimate.
Adjusted earnings per share (EPS) of 35 cents missed the consensus mark by a penny and fell short of the year-ago figure by 5 cents. The bottom line was hurt by the normalization of adjusted effective tax rate and negative impact of 2 cents due to unfavorable foreign currency movements, which, however, were partially offset by improved operating performance.
Total segment revenues of $2.16 billion lagged the consensus estimate by $47 million. The top line was, however, up 4% year over year on a reported basis, 3% on a comparable accounting basis and 5% on an organic constant currency basis. Impacted by the adoption of ASC 606, consolidated revenues were down 22.9% year over year to $2.37 billion.
The top line benefited from strength across the company’s core merchant acquiring and card issuance businesses. ISV and Clover both performed strongly in the quarter. While ISV recorded more than 50% revenue growth, annualized volume on Clover was up 45% year over year. First Data is increasing its investments in both these businesses. International businesses recorded double-digit growth in the quarter.
Additionally, the company is expanding its digital merchant signup initiatives across its JV and other bank partners. Its direct channel continues to grow on the back of solid volume growth across RSA partners and several initiatives undertaken in the last two years.
On Sep 28, First Data completed the divestiture of its card processing businesses in Greece and Central/Eastern Europe (reported within GFS EMEA) for $440.07 million (€387 million). On Aug 16, the company closed the divestiture of its check remittance processing business (reported within GFS North America) for approximately $100 million.
So far this year, shares of First Data have gained 29.3% against 1.2% decline of the industry it belongs to.
Let’s check out the numbers in detail.
Segments in Detail
Global Business Solutions: This segment generated revenues of $1.38 billion, which grew 10% year over year on a reported basis, 7% on a comparable accounting basis and 6% on an organic constant currency basis. Growth was driven by strong geographical market results across North America, Latin America, Europe, Middle East and Africa (EMEA) and Asia Pacific (APAC) regions.
Strong growth in the ISV and agent businesses within the Partner Solutions channel, combined with good growth in the Direct channel boosted North American performance. Latin American revenues were driven by strong growth in Argentina and Brazil. While growth in the U.K.drove EMEA revenues, APAC revenues were driven by solid growth in India.
Global Financial Solutions: Revenues from this segment came in at $407 million, down 2% year over year on a reported basis,1% on a comparable accounting basisbut up 6% on an organic constant-currency basis. The improvement can be attributed to higher revenues from Latin America and APAC, partially offset by lower revenues from North America and EMEA.
Network & Security Solutions: This segment generated revenues of $367 million, down 7% year over year on a reported basis, 4% on a comparable accounting basisand 2% on an organic constant currency basis. The downside was due to lower revenues in Stored value network, Security and fraud and TeleCheck, which was partially offset by strength across EFT Network Solutions (which recorded mid-single digit year over year growth).
Operating Results
Total segment EBITDA came in at $815 million, up 4% year over year on a reportedbasis, 5% on a comparable accounting basis and 7% on an organic constant currency basis. Segment EBITDA margin of 37.8% improved50 basis points (bps) year over year on a comparable accounting basisand 60 bps on an organic constant currency basis.
Operating profit increased 13.9% year over year to $475 million. Operating profit margin climbed to 22% from 20% in the prior-year quarter.Total expenses declined 28.8% from the year-ago quarter to $1.89 billion.
First Data Corporation Price, Consensus and EPS Surprise
First Data Corporation Price, Consensus and EPS Surprise | First Data Corporation Quote
Balance Sheet & Cash Flow
First Data exited the third quarter of 2018 with cash and cash equivalents of $601 million compared with $544 million at the end of the prior quarter. Long-term debt was $16.9 billion compared with $17.7 billion at the end of the prior quarter.
The company generated $671 million of cash from operating activities in the reported quarter. Free cash flow was $444 million. Capital expenditures were $162 million.
2018 Guidance
First Data revised its 2018 guidance for segment revenue growth, segment EBITDA growth and adjusted EPS.
For segment revenues, First Data expects reported constant currency growth of 6.3-7.3% compared with the previously guided growth range of 7-8%. Organic constant currency segment revenue growth range of 5-6% remains unchanged.
Segment EBITDA is now expected to register 7.6-9.6% growth on a reported constant currency basis compared with the previously guided growth range of 8-10%. Organic constant currency segment EBITDA growth range of 6.5-8.5% remains unchanged.
The revised guidance for segment revenue and segment EBITDA growth reflects the impact of divestitures completed in the third quarter of 2018.
Adjusted earnings are expected in the range of $1.38-$1.40 compared with$1.42-$1.47 guided earlier. The decline in EPS guidance primarily reflects the negative impact associated with foreign currency movements and a modest dilutive impact of two recent divestitures. The Zacks Consensus Estimate of $1.45 exceeds the currently guided range.
Full-year free cash flow guidance of more than $1.4 billion remains unchanged.
Zacks Rank & Upcoming Releases
First Data currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Investors interested in the broader Business Services sector are keenly awaiting third-quarter earnings reports of key players like Clean Harbors (CLH - Free Report) , Fiserv and WEX (WEX - Free Report) , all of which are scheduled to report on Oct 31.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>