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Alliance Data (ADS) Q1 Earnings Top, 2018 Guidance Intact

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Alliance Data Systems Corporation’s (ADS - Free Report) operating earnings of $4.44 per share in the first quarter of 2018 surpassed the Zacks Consensus Estimate of $4.27. Also, the bottom line improved 13% year over year on lower tax and share count.

Alliance Data Systems Corporation Price, Consensus and EPS Surprise


The quarter witnessed higher revenues, lower expenses, benefits of lower tax and decrease in share count owing to buybacks. Card Services continues to exhibit solid results.

Behind the Headlines

Alliance Data’s revenues came in at $1.88 billion, up 0.3% year over year. Pro forma revenues, which adjust for the change to net revenue presentation for AIR MILES effective Jan 1, 2018, improved 4% year over year to $1.96 billion.

Operating expenses decreased 1.3% year over year to $1.5 billion, primarily on the back of lower cost of operations. Operating income increased 7.2% year over year to $377.8 million.

Adjusted EBITDA (net of funding costs) slipped 0.7% year over year to $437 million.

Segment Update

LoyaltyOne: Revenues totaled $226.3 million, slumping 32% year over year. Adjusted EBITDA declined 8% to $53.9 million. While AIR MILES’ reward miles issued decreased 1%, AIR MILES’ reward miles redeemed decreased 4%.

Nonetheless, the company stated that BrandLoyalty's growing pipeline of programs already provides visibility to about 90% of its revenue guidance for 2018.
Epsilon: Revenues were $509.4 million in the quarter under review, down 4% year over year, attributable to decrease in lower margin pass-through agency business. Adjusted EBITDA increased 8% year over year to $91.6 million, driven by a shift in revenue mix.

Card Services: Revenues came in at $1.2 billion, up 13% year over year. Adjusted EBITDA was $318.6 million, down 4% year over year. The metric is affected by a $50-million allowance for loan loss build and an approximate $25-million market adjustment to the carrying value of held-for-sale receivables.

Financial Update

As of Mar 31, 2018, cash and cash equivalents were $3.5 billion, down 15.3% from Dec 31, 2017-level of $4.2 billion.

At the end of the quarter, debt nudged up 0.2% from 2017-end to $6.1 billion.

Cash from operations improved nearly 37.7% to $649.9 million while capital expenditure at Alliance Data decreased 4.1% year over year to $44.7 million in the reported quarter.

2018 Guidance Reiterated

The company continues to expect core EPS between $22.50 and $23.00, up 16% and 19% over the tally in 2017. Revenues of $8.35 billion represent an 8% increase over last-year’s figure.

Zacks Rank

Alliance Data carries a Zacks Rank #4 (Sell).

Stocks That Warrant a Look

Some other players from the same space, poised to beat on earnings per the proven Zacks model are:

Total System Services, Inc. (TSS - Free Report) is set to report first-quarter earnings on Apr 24. The company has an Earnings ESP of +0.51% and a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

WEX Inc. (WEX - Free Report) has an Earnings ESP of +1.61% and a Zacks Rank #3 (Hold). The company is set to release first-quarter earnings numbers on Apr 26.

Vantiv, Inc. (WP - Free Report) has an Earnings ESP of +0.78% and a Zacks Rank of 3. The company is set to announce first-quarter financial figures on Apr 25.

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