Fiserv's EPS in Line, Outlook Upbeat

Fiserv Inc. (FISV - Analyst Report) reported an adjusted income from continuing operations (excluding one-time items) of $181 million or $1.27 per share in the fourth quarter of 2011 compared to a net income of $166 million or $1.16 per share in the third quarter of 2011 and a net income of $159 million or $1.06 per share in the year-ago quarter. Earnings were in line with the Zacks Consensus Estimate.

In 2011, adjusted income from continuing operations came to $661 million or $4.58 per share, rising from $614 million or $4.05 per share in the previous year. Management was quite happy about these figures as the results were within its previously provided guidance range of $4.54 - $4.60 per share.

Revenues

Adjusted revenues (excluding output solutions postage reimbursements) came to $1.08 billion, up 5.6% year over year and 8% sequentially. Strong segment and license sales along with continued faith of customers are primary drivers for the revenue increase. This, however, missed the Zacks Consensus Estimate of $1.135 billion.

The Payments and Industry Products segment reported adjusted revenues of $558 million, up 5.3% year over year and 6.1% sequentially. Adversities arising from the Durbin Amendment and Wachovia bill payment de-conversion deteriorated gains from this segment largely.

The Financial Institution Services segment revenues came in at $540 million, rising 6.7% annually and 10.9% sequentially, primarily attributable to strong account processing ameliorations and high margin sales.

The Corporate and Other segment recorded a loss of $14 million, declining 55.6% since the previous year quarter.

In 2011, adjusted revenues were $4.07 billion, growing 3.6% annually. Payments and Industry Product adjusted revenues for the full year rose 5.4% to $2.12 billion annually, whereas Financial Institution Services adjusted revenues increased 2.7% annually to reach $2.0 billion at the end of 2011.   

Margins

Adjusted operating margin (excluding mergers, severance costs and amortization of acquisition-related intangible assets) in the quarter came to 30.0% versus 29.7% in the previous year quarter and 29.0% in the last quarter.

The Payments and Industry Products adjusted operating margin was 31.2%, falling from 31.5% in the last year quarter but increasing marginally from 30.8% sequentially. This was mainly because of continued investments made in Mobiliti, person to person (P2P) and internet banking. The CashEdge acquisition also negatively impacted margins in this segment in the December quarter.

The Financial Institution Services segment operating margin came in at 33.1% on the back of increased high margin sales, rising from 31.7% in the previous year quarter and 29.4% in the third quarter of 2011

In full year 2011, large investment and Corporate segment costs along with the onus of employee increment growth detrimentally affected adjusted operating margin as it fell to 29.2% from 29.4% in 2010.

Segment-wise, Payments and Industry Products recorded an adjusted operating margin of 31% in 2011 versus 31.2% in 2010, whereas Financial Institution Services had a better operating margin of 30.6% in 2011 versus 30.3% in 2010.

Effective tax rate amounted to 37% for the December quarter, in line with management’s previously provided forecasts. In 2011, tax rate came in at 36% which was a definite improvement compared to 2010.

Balance Sheet and Cash Flow

As of December 31, 2011, the company had cash and cash equivalents of $337 million, increasing from $281 million at the end of the previous quarter. Also, net trade accounts receivable came in $666 million, rising from $579 million at the end of the previous quarter. Long-term debt reduced to $3.2 billion from $3.35 billion at the end of the previous quarter.

Net cash provided by operating activities amounted to $953 million at the end of fiscal year 2011 compared to $958 million in the previous year. Capital expenditures incurred were $192 million versus $175 million at the end of December 2010.

Share Repurchase and Acquisition

In 2011, Fiserv repurchased 8.8 million shares for $553 million and had about 4.7 million shares remaining under its current share repurchase authorization.

During 2011, the company finished the acquisitions of M-Com, Maverick solutions and CashEdge to ameliorate future revenues and improve business diversification.

Outlook

Management is quite optimistic about its performance in 2012. It currently projects an annual adjusted revenue growth rate of 4% - 6% with adjusted EPS expectations of $5.04 - $5.20, representing a yearly growth of 10% - 14%.

Forecast for adjusted operating margin is an increase of 50 basis points for 2012 along with strong free cash glow flow generation rising 8% - 12% year over year. Effective tax rate is expected to remain flat compared to 2011 at 36%.

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