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Fiserv Inc. (FISV - Analyst Report) reported an adjusted income from continuing operations (excluding one-time items) of $173 million or $1.27 per share in the third quarter of 2012 compared to a net income of $166 million or $1.16 per share in the previous year quarter and $177 million or $1.28 per share in the second quarter of 2012. Fiserv’s earnings were in line with the Zacks Consensus Estimate of $1.27 per share.

Revenues

Adjusted revenues (excluding output solutions postage reimbursements) for Fiserv amounted to $1.05 billion, rising 4.7% year over year and nearly 2% sequentially. Revenue growth across the company’s debit, account processing and mobile businesses was the primary cause for the annual rise in adjusted revenues for the quarter. This, however, missed the Zacks Consensus Estimate of $1.12 billion.

The Payments and Industry Products segment reported adjusted revenues of $548 million, up 4.2% year over year and nearly 2% sequentially. The high recurring revenues accruing from the company’s card services and digital channels, offsetting the adverse impact from the investment services and Durbin effect on the company’s biller business, drove the segment’s revenue during the quarter.

The Financial Institution Services segment revenues came in at $513 million, up 5.3% and 2.2% sequentially, led by the company’s Account Processing and Lending business sales.

The Corporate and Other segment recorded a loss of $12 million, up 9.1% year over year and 9.1% sequentially.

Margins

Adjusted operating margin (excluding mergers, severance costs and amortization of acquisition-related intangible assets) in the quarter came to 29.8%, compared with 29.0% in the year earlier quarter and it also increased by 50 basis points from the last quarter. The rise was attributable to the company’s improved performance in its Financial Institution Services segment and increased operational efficiencies achieved during the quarter.

The Payments and Industry Products’ adjusted operating margin was 30.7% compared to 30.8% in the year-ago quarter and 29.8% in the last quarter. Strengthening Fiserv’s mobile and online banking services, the coalition of CashEdge and the adverse impact from bill payment deconversions adversely affected the segment’s margin.

The Financial Institution Services segment’s operating margin came in at 32.1%, rising from 29.4% in the previous year quarter but declining from 32.5% in the previous quarter. The company’s increased license and termination fee revenue and higher efficiency gains were the primary causes for the rise in the margins in the quarter. The company’s operational efficiency also positively impacted the quarter’s margins.

Corporate and Other segment witnessed an operating loss of $21 million, which remains flat sequentially but increased from $15 million loss incurred in the prior year quarter.

Balance Sheet and Cash Flow

As of September 30, 2012, the company had cash and cash equivalents of $307 million, increasing from $302 million at the end of the previous quarter. In addition, net trade accounts receivable came in for $643 million, rising from $606 million at the end of the previous quarter. Long-term debt came to $3.4 billion compared with $3.2 billion in the previous quarter.

Net cash provided by operating activities amounted to $548 million in the first nine months of 2012 compared to $681 million in the previous year period. Capital expenditures incurred were $146 million versus $144 million in the year-ago period.

Share Repurchase

During the third quarter of 2012, Fiserv repurchased 2.7 million shares worth $189 million, bringing the total to 8.5 million shares for $577 million during the first nine months of 2012. Under the existing share repurchase authorization program, Fiserv has about 6 million shares remaining for repurchase.

Outlook

Management reiterated its guidance for 2012. Annual adjusted revenue growth is expected to be 4% - 6% and adjusted internal revenue growth to be 3.0% - 4.5%. The adjusted EPS is likely to be in the range of $5.08 - $5.20, representing a yearly growth of 11% - 14%.

The adjusted operating margin is expected to increase annually by 30 basis points to 60 basis points for 2012. Free cash flow growth is anticipated to be within 8% - 12%.

Headquartered in Brookfield, Wisconsin, Fiserv engaged in providing financial services technology solutions, including electronic commerce systems and services, such as transaction processing, electronic bill payment and presentment, business process outsourcing, document distribution services, and software and systems solutions. The company’s primary competitors include big players such as Mastercard Incorporated (MA - Analyst Report), Fidelity National Information Services, Inc. (FIS - Analyst Report) and Total System Services, Inc. (TSS - Analyst Report).

Our Take

The company currently retains a Zacks #2 Rank, which translates into a short-term ‘Buy’ rating. We also maintain a long-term ‘Neutral’ recommendation on the stock.

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