Fiserv Tops Estimates

Fiserv Inc. (FISV - Analyst Report) reported an adjusted income from continuing operations of $166 million or $1.16 per share in the third quarter of 2011 compared to a net income of $163 million (excluding items) or $1.13 per share in the second quarter of 2011 and a net income of $157 million or $1.04 per share in the year-ago quarter.  Earnings surpassed the Zacks Consensus Estimate of $1.14.

Including one-time items, net income from continuing operations came in at $127 million or $0.89 per diluted share compared to a net income of $134 million or $0.87 per share in the year-ago quarter. 

Revenues

Revenues came in at $1.06 billion, up 2.9% from the year-earlier quarter. Adjusted revenue (excluding output solutions postage reimbursements) increased 2.0% year over year to $1.00 billion, driven by a 4% growth in the Payments segment.

Fiserv operates in two business segments: Financial Institution Services, and Payments and Industry Products.

Financial Institution Services generated revenues of $487 million, almost flat from the year-ago quarter.

Adjusted revenues from Payments and Industry Products improved 5% from the year-ago quarter to $526 million. Fiserv continued to expand its consumer payment footprint by signing 114 electronic bill payment clients and 48 debit clients in the quarter. In the first nine months, Fiserv signed 321 bill payment clients and 142 debit clients.

Margins

Adjusted operating margin (excluding mergers, severance costs and amortization of acquisition-related intangible assets) declined to 29.0% from 29.4% in the year-ago quarter and 29.3% in the previous quarter.

The Financial segment’s adjusted operating margin came in at 29.4%, compared to 29.5% in the year-quarter and 30.8% in the previous quarter. The Payment segment’s adjusted operating margin came in at 30.8%, compared to 31.7% both in the previous quarter and year-ago quarter.

Balance Sheet and Cash Flow

As of September 30, 2011, Fiserv had cash and equivalents of $281 million, down from $675 million at the end of the previous quarter. At the end of the quarter, long-term debt remained static at $3.5 billion, down from $3.4 billion at the end of the previous quarter.

During the first nine months of 2011, the company generated $532 million of cash from operating activities and used $144 million in capital expenditures.

Share Repurchase and Acquisition

During the first nine months, Fiserv repurchased 7.8 million shares for $475 million. At the end of the quarter, Fiserv had about 5.7 million shares remaining under its current share repurchase authorization.

Guidance

Fiserv continues to focus on growth, especially high-quality revenue growth and innovative products.

For 2011, management reiterated its adjusted internal revenue growth expectation in the range of 2%-4%. Fiserv now expects adjusted operating margins in the range of 29.5%-29.9% from the previous expectation of 29.9%. The company now expects its adjusted earnings per share in the range of $4.54-$4.60, up from the previous expectation of $4.42-$4.54, implying a 12%-14% growth.

Fiserv, which competes with Fidelity National Information Services Inc.  (FIS - Analyst Report), assists financial institutions and health plan administrators in managing their information systems, thus helping them deliver services to their customers efficiently.

We believe that the company will benefit from its strategic acquisitions and investments in technology solutions. However, we remain concerned about the company’s slow organic growth and margin setbacks.

We have a long-term Neutral recommendation on Fiserv. Currently, Fiserv has a Zacks #3 Rank, implying a short-term Hold rating.

Read the full analyst report on FIS

Read the full analyst report on FISV