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Alliance Data (ADS) Q3 Earnings, Revenues Beat Estimates

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Alliance Data Systems Corporation’s (ADS - Free Report) operating earnings of $3.36 per share for the third quarter of 2020 beat the Zacks Consensus Estimate of $2.11. However, the bottom line plunged 32.9% year over year.

Shares of the company gained 6.7% in the pre-market trading session, reflecting the outperformance.

The soft year-over-year performance was attributable to lower revenues as a result of a decline in volumes due to the COVID-19 pandemic. However, lower expense limited the downside. Third-quarter results also demonstrated a modest recovery in Card Services credit sales.      

Alliance Data Systems Corporation Price, Consensus and EPS Surprise

Behind the Headlines

Alliance Data reported total revenues of $1.1 billion, down 27% year over year, attributable to the continuing impacts of COVID-19. Both Card Services as well as LoyaltyOne segment generated lower revenues. The top line however beat the Zacks Consensus Estimate by 2.2%.
    
Operating expenses decreased about 33% year over year to $759.5 million. Operating income decreased 4.3% year over year to $291 million largely due to lower revenues.

Adjusted EBITDA (net of funding costs) declined 32% year over year to $250 million.

Segment Update

LoyaltyOne: Revenues totaled $185 million, down 25% year over year, attributable to fewer short-term loyalty programs due to the impact of COVID-19 as well as divestment of Precima.

Adjusted EBITDA decreased 31% to $40.1 million.

AIR MILES reward miles issued decreased 8%, reflecting a decline in discretionary spending, including credit card spend and delays in promotions by sponsors. AIR MILES reward miles redeemed declined 36%, reflecting the impact of the pandemic on travel-related categories, offset in part by strength from merchandise redemptions.

BrandLoyalty revenues decreased 24% due to a decline in programs.

Card Services: Revenues were $866 million, down 27% year over year, attributable to decline in average receivables, reflecting lower sales volumes, and in part interest rate cuts earlier this year. Adjusted EBITDA was $233.1 million, down 29% year over year.

Financial Update

As of Sep 30, 2020, cash and cash equivalents was $3.1 billion, down 20.5% from Dec 31, 2019-level.

At quarter end, the debt level was down 1.6% from 2019-end to $2.8 billion.

Cash from operations decreased 2.7% year over year to $1.5 billion in the first nine months of the year. Capital expenditure at Alliance Data declined 68.2% year over year to $37.9 million in the same period.

Dividend Update

The board of directors approved a quarterly dividend of 21 cents to be paid out on Dec 18 to stockholders of record as of Nov 13.

Acquisition of Bread

Alliance Data inked a definitive agreement to acquire Bread, a technology-driven digital payments company. The acquisition, expected to be closed in the fourth quarter of 2020, will expand digital offerings to include installment and buy now, pay later payment products.

Zacks Rank

Alliance Data currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Financial Transaction Services Players

The bottom line of Visa (V - Free Report) and Global Payments (GPN - Free Report) beat the respective Zacks Consensus Estimate while that of Mastercard (MA - Free Report) missed the same.

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Free Report) %20and%20Global%20Payments%20(GPN - Free Report) %20beat%20the%20respective%20Zacks%20Consensus%20Estimate%20while%20that%20of%20Mastercard%20(MA - Free Report) %20missed%20the%20same.%20%20%20Looking%20for%20Stocks%20with%20Skyrocketing%20Upside?%20%20%20Zacks%20has%20just%20released%20a%20Special%20Report%20on%20the%20booming%20investment%20opportunities%20of%20legal%20marijuana.%20%20%20Ignited%20by%20referendums%20and%20legislation,%20this%20industry%20is%20expected%20to%20blast%20from%20an%20already%20robust%20%2417.7%20billion%20in%202019%20to%20a%20staggering%20%2473.6%20billion%20by%202027.%20Early%20investors%20stand%20to%20make%20a%20killing,%20but%20you%20have%20to%20be%20ready%20to%20act%20and%20know%20just%20where%20to%20look.%20%20%20See%20the%20pot%20stocks%20we're%20targeting%20>>">See the pot stocks we're targeting >>