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Fidelity National (FIS) Q2 Earnings Beat, Guidance Up

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Fidelity National Information Services’ (FIS - Free Report) second-quarter 2018 adjusted earnings per share from continuing operations came in at $1.23, surpassing the Zacks Consensus Estimate of $1.20. Also, earnings improved 18.3% from the year-ago quarter figure of $1.04.

Lower expenses and expanding margin were the key tailwinds. Also, the company raised full-year 2018 guidance on relatively strong second-quarter performance. However, decline in revenues and huge outstanding debt remain key concerns.

The company reported net earnings of $212 million or 64 cents in the quarter compared with $139 million or 42 cents in the prior-year quarter.

Decline in Expenses Partially Offset by Lower Revenues

GAAP revenues for the quarter came in at $2.11 billion, which declined 6.7% year over year. Also, the figure lagged the Zacks Consensus Estimate of $2.12 billion.

Organic revenue growth was nearly 1% in the quarter.

Selling, general and administrative expenses came in at $339 million, down 7.9% year over year.

Segment wise, Integrated Financial Solutions’ GAAP revenues grew 3.4% year over year to $1.12 billion while revenues from Global Financial Solutions declined 17.2% to $899 million. Corporate/Other revenues decreased 2% to $83 million.

Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) rose nearly 1% year over year to $757 million while adjusted EBITDA margin expanded 260 basis points to 35.9%.

Balance Sheet & Cash Flow

As of Jun 30, 2018, cash and cash equivalents were $683 million compared with $786 million as of Jun 30, 2017. Debt outstanding was nearly $8.89 billion.

In the second quarter, net cash provided by operations was $823 million and free cash flow was $275 million.

Fidelity paid dividends worth $105 million in the quarter and repurchased 2.1 million shares at a total cost of about $200 million. As of Jun 30, 2018, the company has about $3.3 billion share repurchase authorization remaining.

Guidance for 2018

Fidelity expects organic revenue growth to be in the range of 2.5-3.5% while GAAP revenue growth is expected to decline 1.5-2.5%.

Adjusted earnings per share are expected to be in the band of $5.18-$5.34, up from $5.14-$5.34 expected previously.

Adjusted EBITDA margin is expected to be about 37%. Previously, the company had expected the metric to fall between 36% and 37%.

Our Take

Fidelity enjoys a dominant position in financial and payments solutions business, backed by its robust product portfolio. We believe that the company is well positioned to benefit from increasing investment in digitization.

However, increasing consolidation in the banking sector, challenging environment for the Payments Solutions business and an uncertain regulatory environment are the primary headwinds. Also, consistently declining revenues remain a major concern.

Fidelity National Information Services, Inc. Price, Consensus and EPS Surprise

Fidelity currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Stocks

Alliance Data Systems Corporation’s (ADS - Free Report) operating earnings of $5.01 per share in the second quarter of 2018 surpassed the Zacks Consensus Estimate of $4.59. Also, the bottom line improved 31% year over year on the strength of Card Services and LoyaltyOne segment results.

Visa Inc. (V - Free Report) reported third-quarter fiscal 2018 (ended Jun 30, 2018) earnings of $1.20 per share, beating the Zacks Consensus Estimate by 11.11%. Also, the bottom line improved 39% year over year. Results were driven by growth in payments volume, cross-border volume and processed transactions.

Total System Services, Inc.’s (TSS - Free Report) second-quarter 2018 earnings per share of $1.11 surpassed the Zacks Consensus Estimate by 2.7% and surged 30.5% year over year. Exceptional performances by all three segments have contributed to the favorable results.

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