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Alliance Data (ADS) Q3 Earnings & Revenues Top Estimates

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Alliance Data Systems Corporation’s net income of $4.47 per share for the third quarter of 2021 outpaced the Zacks Consensus Estimate by 27.3%. Moreover, the bottom line increased 33% year over year.

The quarterly earnings benefited from higher revenues coupled with lower expenses.

The company witnessed higher revenues in the Card Services segment, lower expenses as well as increased EBT during the quarter.

Behind the Headlines

Alliance Data reported total revenues of $1.1 billion, up 5% year over year, attributable to higher revenues at the Card Services segment, offset by lower revenues at the LoyaltyOne segment. The top line beat the Zacks Consensus Estimate by 0.9%.

Operating expenses decreased 5.7% year over year to $716.5 million. Operating income increased 31.5% year over year to $382.8 million, largely due to lower expenses.

EBT increased 65% to $291 million due to lower provision for loan loss.

Segment Update

LoyaltyOne: Revenues totaled $169.3 million, down 8% year over year. EBT increased 143% to $45 million due to lower cost of redemptions and amortization expense.

AIR MILES reward miles issued increased 9%, due in part to higher redemptions, as well as the impact of favorable currency exchange rates. AIR MILES reward miles redeemed increased 30%, reflecting an improvement in travel-related categories.

BrandLoyalty revenues decreased 18% due to a decline in retailer programs associated with the continuing impact of COVID-19.

Card Services: Revenues were $930 million, up 7% year over year, primarily due to the negative impact of the pandemic on gross revenue yields in the third quarter of 2020. EBT increased 48% to $314 million, attributable to improved revenues, lower interest expense, and a lower provision for loan loss.

Financial Update

As of Sep 30, 2021, cash and cash equivalents was $3.2 billion, up 2.9% from Dec 31, 2020-level.

At quarter-end, the debt level was down 2.6% from 2020-end to $2.7 billion.

Cash from operations decreased 18.8% year over year to $1.1 billion in the first nine months of the year. Capital expenditure at Alliance Data increased 55.1% year over year to $58.8 million in the same period.

Dividend Update

The board of directors approved a quarterly dividend of 21 cents to be paid out on Dec 17 to stockholders of record as of Nov 12.

Spin-off of the LoyaltyOne Segment

The spin-off of the LoyaltyOne segment is expected to happen on Nov 5, 2021. Following the spin-off, Alliance Data will retain a 19% ownership in Loyalty Ventures Inc., and expects to receive a $750 million cash distribution from it, which it will use for deleveraging. The spin-off is expected to provide a significant improvement in Alliance Data’s capital metrics. Loyalty Ventures will have the opportunity to focus on its unique strategic priorities and make meaningful investments to drive growth and efficiencies.

Guidance

Total revenues in 2021 are anticipated to be down in low single digits year over year due to lower receivables.

Credit sales are estimated to increase at a double-digit growth rate, providing positive receivables growth momentum into 2022.

Based on the current visibility and payment rate expectations, receivables at year-end 2021 are projected to be in line with year-end 2020 levels. The company expects to resume high-single- to low-double-digit average receivables growth in 2022.

The company expects total expenses, excluding provision for loan loss, to be flat to modestly down year over year while it continues to fund initiatives to position the company for future growth.

In 2021, the company is investing over $100 million in digital innovation and technology enhancements and expects to continue to invest in 2022.

Zacks Rank

Alliance Data currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Another Financial Transaction Services Release

American Express’ (AXP - Free Report) third-quarter 2021 earnings beat the Zacks Consensus Estimate.

Upcoming Releases

Global Payments (GPN - Free Report) is set to release third-quarter 2021 earnings on Nov 2. The Zacks Consensus Estimate for the same stands at $2.05 per share.

The Western Union Company (WU - Free Report) is set to release third-quarter 2021 earnings on Nov 2. The Zacks Consensus Estimate for the same stands at 58 cents per share.


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