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Alliance Data's (ADS) Q3 Earnings Top, Rise Y/Y, View Intact

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Alliance Data Systems Corporation’s (ADS - Free Report) operating earnings of $5.35 per share in the third quarter of 2017 marginally surpassed the Zacks Consensus Estimate of $5.03. Earnings improved 12.9% year over year.

Card Service segment continues to post better results. However, LoyaltyOne and Epsilon were soft in the third quarter.

Alliance Data Systems Corporation Price, Consensus and EPS Surprise

Behind the Headlines

Alliance Data’s revenues came in at $1.91 billion, up 1% year over year. The top line missed the Zacks Consensus Estimate by 3.2%.

Operating expenses decreased 2.1% year over year to $1.4 billion, primarily on the back of lower provision for loan losses. Operating income rallied 13.7% year over year to $478.9 million.

Adjusted EBITDA climbed 10% year over year to $622 million.

Segment Update

LoyaltyOne: Revenues totaled $305 million, down 20% year over year. Adjusted EBITDA declined 26% to $61 million. AIR MILES’ reward miles issued decreased 7% while AIR MILES’ reward miles redeemed slumped 43%.
    
Epsilon: Revenues were $559 million in the quarter, up 3% year over year. Adjusted EBITDA decreased 7% year over year to $125 million due to an unfavorable revenue mix toward lower margin product offerings.

Card Services: Revenues came in at $1.1 billion, up 9% year over year. Adjusted EBITDA was $397 million, up 20% year over year. Average credit card receivables, excluding amounts reclassified as assets held for sale, increased 14% year over year to $15.9 billion. Net principal loss rates for the reported quarter were 5.5%, up 80 basis points year over year.

Financial Update

As of Sep 30, 2017, cash and cash equivalents were $3.3 billion compared with $1.8 billion as of Dec 31, 2016.

At the end of the quarter, debt rose 10.7% from 2016-end to $6.2 billion.

Capital expenditure at Alliance Data grew 11.6% year over year to $176.6 million in the first nine months of 2017.

Guidance

Alliance Data affirmed 2017 core earnings at $18.10 per share on revenues at $7.8 billion. While the bottom line is expected to rise 7%, the top line is likely to improve 9%.  

For 2018, the company expects core EPS of $21.50 on revenues of $8.7 billion. While the bottom line is projected to rally 19%, the top line is estimated to climb 12%.  

Zacks Rank

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

Performance of a Financial Transaction Service Provider

American Express Co.’s (AXP - Free Report) bottom line has surpassed the Zacks Consensus Estimate in the third quarter.

Stocks to Consider

Some better-ranked financial transaction service providers are Total System Services, Inc. (TSS - Free Report) and MasterCard Inc. (MA - Free Report) , both carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Total System Services is set to report third-quarter results on Oct 24. The Zacks Consensus Estimate is pegged at 81 cents, up 13.8% year over year.

MasterCard is set to report third-quarter results on Oct 31. The Zacks Consensus Estimate is pegged at $1.23, up 14% year over year.

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