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Total System (TSS) Q3 Earnings, Revenues Miss Estimates

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Total System Services, Inc.’s   third-quarter 2016 operating earnings per share (EPS) of 66 cents missed the Zacks Consensus Estimate of 67 cents.

Including the adverse impact of currency and severance expenses of approximately 6 cents, adjusted EPS came in at 71 cents. This reflects a decrease of 8.7% from the prior-year earnings of 78 cents per share. The downside mainly stemmed from a substantial year-over-year increase in expenses.

Total revenue of $1.1 billion missed the Zacks Consensus Estimate of $1.16 billion. Nonetheless, the top line surged 62% year over year due to outstanding performance by its Merchant Services segment.

Total System reported a year-over-year increase of 82% in total expenses to $991.6 million. A rise of 84.1% in cost of services and a 71.3% increase in selling, general and administrative expenses escalated total expenses.

Segments Results

North AmericaServices

Net revenue inched up 2.4% year over year to $300 million in North America. The top-line growth in the region was backed by job gains in the U.S. and overall improvement in consumer spending during the quarter Total transaction for this segment was $4.4 billion in the third quarter.

Operating income of $113 million for the segment slipped 0.5% year over year. Operating margin declined by 110 basis points (bps) year over year to 37.3%

International Services

For this segment, net revenue decreased 8.1% year over year to $79.4 million. The segment recorded total transactions of $699 million in the third quarter.

Operating income plunged 15.5% year over year to $15.5 million. Operating margin declined by 180 bps year over year to 19.5%

Merchant Services

Net revenues soared 112% year over year to $262.5 million. Point-of-sales transactions increased 5.4% to $1.2 billion. Dollar sales volume for this segment soared nearly 140% year over year to $28.6 billion.

Operating income surged 114% year over year to $90.8 million. Operating margin improved 30 bps year over year to 34.6%

NetSpend

Net revenue jumped 11.2% year over year to $155 million. Gross dollar volume for this segment was $6.4 billion in the third quarter, up 18% year over year.

Operating income grew by 9.5% year over year to $40.8 million. Operating margin declined by 40 bps year over year to 26.3%.

Financial Update

Total assets increased 64% to $6.37 billion as of Sep 30, 2016 from $3.88 billion at year-end 2015. Total equity climbed 12% to $2.06 billion as of Sep 30, 2016 from $1.84 billion at the end of 2015.

Cash from operations was $550 million as against $460 million in third-quarter 2015. Free cash flow totaled $443.6 million as of Sep 30, 2016 compared with $324.4 million in the year-ago quarter.

2016 Guidance

Total System has adjusted its financial guidance for full-year of 2016 to account for currency headwinds. Nonetheless, the company reiterated its adjusted EPS projection.

Earlier, management had increased total revenue estimates for 2016 to $4.17 billion from $4.15 billion. Net revenue projection for the full year has been raised to $3.04 billion from $3.03 billion.

Adjusted EPS attributable to the company’s common shareholders from continuing operations has been revised to $2.85 from $2.78 guided earlier.

TOTAL SYS SVC Price, Consensus and EPS Surprise

Zacks Rank and Stocks to Consider

Total System presently carries Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Among the other players from the finance sector that have reported their earnings so far, the bottom line at Alliance Data Systems Corporation , Progressive Corp (PGR - Free Report) and American Express Company (AXP - Free Report) comfortably beat their respective Zacks Consensus Estimate.

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