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First Data (FDC) Q2 Earnings Match Estimates, View Intact

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First Data Corporation’s (FDC - Free Report) second-quarter 2017 earnings matched the Zacks Consensus Estimate of 34 cents. Earnings increased 17.2% from the year-ago quarter.

The year-over-year increase in earnings were driven by increased revenues, cost management and capital structure improvement initiatives.

In order to cut on the cost front, the company agreed to divest all of its businesses in the Baltics for €73 million (approximately $85 million). The deal is expected to close in the third quarter of 2017.

First Data also continued to expand its enterprise business. The company differentiates itself in this space by consistently offering new features and solutions to existing clients and making continuous efforts to expand its client base. It continues to maintain its leading position in the bank acquiring channel through strategic partnerships.

First Data continued to progress steadily with its SMB turnaround plan, which is expected to boost the company’s North American merchant business. The company has been improving on both merchant and sales force attrition.

Overall, we believe First Data’s focus on globalizing its offerings, cost management, strategic partnerships, along with its healthy business around large and small banks will drive growth going forward.

CardConnect Buyout Closed

In the quarter, First Data completed the acquisition of peer payment processor and its longtime distribution partner, CardConnect Corp, in an all-cash transaction. The acquisition is anticipated to make a modest contribution to First Data’s adjusted earnings per share (EPS) in the first full year post closing. However, the deal is expected to impact the company’s net debt in the third quarter.

The deal will help First Data to boost its financial technology capacities. Moreover, the addition of CardConnect’s invoice-to-cash processing capabilities will open vast opportunities for First Data in the ERP space and help it better manage cash and other services for clients.

On a year-to-date basis, the stock has outperformed the industry it belongs to. It gained 28.1% compared with the industry’s loss of 0.17%.

Numbers in Detail

Consolidated Revenues

Consolidated revenues that include transaction and processing fees, product sales, reimbursable debit network fees, postage and other were $3.0 billion, up 3% year over year and 4% on a constant currency basis.

Revenues by Segment

Segmental revenues including that from Global Business Solutions, Global Financial Solutions and Network & Security Solutions came in at $1.8 billion up 3% year over year on a reported basis and 5% on a constant currency basis.

Global Business Solutions (GBS), Global Financial Solutions (GFS) and Network & Security Solutions (NSS) registered 58%, 22% and 20% of quarterly revenues, respectively.

Seasonality results in considerable variations in First Data’s quarterly revenues.

Global Business Solutions increased 3% year over year on a reported basis and 5% on a constant currency basis driven by strong results across North America, Europe, Middle East and Africa (EMEA) and Asia Pacific (APAC) regions.

Global Financial Solutions increased 2% year over year on a reported basis and 4% on a constant-currency basis. New business and internal growth in Australia drove the improvement. 

Network & Security Solutions increased 4% year over year on a reported basis driven by strength across Stored Value and Security and Fraud solutions.

Operating Performance

Segmental earnings before interest tax depreciation and amortization (EBITDA) came in at $786 million, up 5% on a reported basis and 7%, exclusive of the impacts from currency and the Australian ATM divestiture. Segment EBITDA margin of 42.5% was up 100 basis points year over year.

Excluding amortization of acquisition-related intangibles, restructuring costs and other items, but including stock-based compensation costs, First Data reported adjusted net income of $324.5 million or 34 cents per share compared with $265.1 million or 29 cents per share in the year-ago quarter. The growth was primarily driven by strong operating results and lower interest expense.

Balance Sheet and Cash Flow

At the end of the second quarter, cash and cash equivalents balance was $493 million compared with $503 million in the previous quarter. Long-term debt was $18.0 billion against $18.1 billion in the previous quarter.

The company generated $580 million in cash from operating activities and spent $139 million on capex. Free cash flow in the quarter was $448 million, up 71.6% from $261 million in the prior quarter.

Outlook

Reiterating its earlier guidance for full-year 2017, the company continues to expect segment revenues to grow 3–5% and segment EBITDA to improve 5–7%. Similarly, adjusted EPS is still expected to grow 15% and free cash flow to stay above the $1 billion mark.

First Data Corporation Price, Consensus and EPS Surprise

 

First Data Corporation Price, Consensus and EPS Surprise | First Data Corporation Quote

Zacks Rank and Stocks to Consider

First Data currently has a Zacks Rank #3 (Hold). A few better-ranked stocks in the same space are Lam Research Corporation (LRCX - Free Report) , carrying a Zacks Rank #1 (Strong Buy), and Applied Materials (AMAT - Free Report) and Fortive Corporation (FTV - Free Report) , carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Lam Research delivered a positive earnings surprise of 4.44%, on average, in the trailing four quarters.

Applied Materials delivered a positive earnings surprise of 3.35%, on average, in the trailing four quarters.

Fortive Corporation delivered a positive earnings surprise of 5.80%, on average, in the trailing four quarters.

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