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Alliance Data (ADS) Posts in Line Q4 Earnings, Keeps '17 View

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Alliance Data Systems Corporation’s (ADS - Free Report) operating earnings of $3.64 per share in the first quarter of 2017 came in line with the Zacks Consensus Estimate. Earnings, however, improved year over year by a penny.

Epsilon and Card Services delivered solid performance in the quarter. However, results at LoyaltyOne were weak.

Shares gained 0.65% in the pre-market trading session. We wait to see how the shares perform during the day.

Behind the Headlines

Alliance Data’s revenues came in at $1.9 billion, up 12% year over year. The top line beat the Zacks Consensus Estimate of $1.8 billion.

Operating expenses jumped 14.6% year over year to $1.5 billion, primarily due to a rise in the cost of operations and higher provision for loan losses. Operating income improved 2.4% year over year to $352.4 million.

However, adjusted earnings before interest tax depreciation and amortization (EBITDA) were $501 million, up 2% year over year.

Segment Update

LoyaltyOne: Revenues totaled $333 million, down 6% year over year. Adjusted EBITDA declined 26% to $59 million. AIR MILES’ saw its reward miles issued and redeemed decreasing 4% each.
Epsilon: Revenues were $529 million in the quarter, up 7% year over year. Adjusted EBITDA increased 5% year over year to $85 million. The quarter witnessed growth in core product offerings revenues (Auto, CRM, Agency). The quarter witnessed the strongest revenue growth in five quarters.

Card Services: Revenues came in at $1 billion, up 22% year over year. Adjusted EBITDA was $331 million, up 8% year over year. Average credit card receivables, excluding amounts reclassified as assets held for sale, advanced 16% year over year to $15.7 billion. Net principal loss rates for the reported quarter were 6.3%, up 110 basis points year over year, chiefly due to account seasoning.

Financial Update

As of Mar 31, 2017, cash and cash equivalents was $1.87 billion compared with $1.86 billion as of Dec 31, 2016. At the end of the reported quarter, credit card and loan receivables, net, were $15.76 billion, down 4.7% from the prior-year period.

At the end of the quarter, debt increased 12.5% from year-end 2015 to $6.3 billion.

Capital expenditure at Alliance Data decreased 15.1% year over year to $46.6 million in the quarter.


For 2017, the company expects revenues of $7.7 billion. Core earnings per share is projected to be $18.50, reflecting growth rate of about 10%.

Zacks Rank and Other Stocks

Alliance Data carries a Zacks Rank #3 (Hold).

Some better-ranked stocks from the financial transaction service space are Fiserv, Inc. (FISV - Free Report) , Total System Services, Inc. (TSS - Free Report) and Visa Inc. (V - Free Report) . Each of these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

While Visa will report results today after the market close, Fiserv and Total System will report results next week.

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