First Data Corporation (FDC - Free Report) reported strong second-quarter 2018 results wherein both earnings and revenues surpassed the Zacks Consensus Estimate.
Adjusted earnings of 39 cents per share beat the consensus mark by 2 cents but fell short of the year-ago figure by a penny. The bottom line was hurt by the normalization of adjusted effective tax rate, which was, however, offset by improved operating performance.
Total segment revenues of $2.23 billion beat the consensus estimate by $46.7 million. The top line was up 11% year over year on a reported basis, 9% on a comparable accounting basisand 6% on an organic constant currency basis. Impacted by the adoption of ASC 606, consolidated revenues were down 19% year over year to $2.45 billion. The top line benefited from strength across all key businesses. With 94 new ISVs in the quarter, the ISV business recorded more than 50% revenue growth.
First Data continues to benefit from strength across the business segments, innovative product and services portfolio, strong global network and strategic capital allocation. Continuous investment for technological development is paying off in terms of profitable businesses.
In the reported quarter, First Data signed an agreement to divest its card processing businesses (reported within GFS EMEA) in Greece and Central/Eastern Europe for $435 million (€375 million). The deal is expected to close by the end of 2018.
So far this year, shares of First Data have gained 43.6%, significantly outperforming the 3.5% rise of the industry it belongs to.
Let’s check out the numbers in detail.
Segments in Detail
Global Business Solutions segment generated revenues of $1.45 billion, which grew 18% year over year on a reported basis, 14% on a comparable accounting basis and 8% on an organic constant currency basis. Growth was driven by strong geographical market results across Latin America, Europe, Middle East and Africa (EMEA) and Asia Pacific (APAC) regions. Strong growth in Argentina and Brazil drove Latin America revenues. APAC revenues were driven by solid growth throughout the region.
Global Financial Solutions: Revenues from this segment came in at $414 million, up 3% year over year on a reported basis,2% on a comparable accounting basisand 4% on an organic constant-currency basis. The improvement can be attributed to higher revenues from Latin America, EMEA and APAC, partially offset by lower revenues from North America.
Network & Security Solutions: This segment generated revenues of $371 million, down 3% year over year on a reported basis, up 1% on a comparable accounting basisand 3% on an organic constant currency basis. The upside was driven by strength across the Stored Value, Security and Fraud, and EFT units, which was, partially offset by lower revenues in TeleCheck.
Total segment EBITDA came in at $864 million, up 10% year over year on a reportedbasis, 10% on a comparable accounting basis and 8% on an organic constant currency basis. Segment EBITDA margin of 38.7% improved18 bps year over year on a comparable accounting basisand 78 bps on an organic constant currency basis.
Operating profit increased 15.2% year over year to $538 million. Operating profit margin climbed to 24.1% from 23.2% in the prior-year quarter.Total expenses declined 25.3% from the year-ago quarter to $1.91 billion.
Balance Sheet & Cash Flow
First Data exited the second quarter with cash and cash equivalents of $544 million compared with $586 million at the end of the prior quarter. Long-term debt was $17.7 billion compared with $17.9 billion at the end of the prior quarter.
The company generated $604 million of cash from operating activities in the reported quarter. Free cash flow was $378 million. Capital expenditures were $151 million.
First Data raised its full year 2018 guidance for segment revenue growth. The company now expects segment revenue to register 7% to 8% growth compared with the previously guided growth range of 6-7%. Both the expectations are inclusive of a net benefit of around 2 percentage points, attributable to the full-year impact of closed major acquisitions and dispositions.
Full-year guidance for segment EBITDA growth, adjusted earnings and free cash flow has been reaffirmed. Total segment EBITDA is expected to register of 8-10% growth. Free cash flow is anticipated to exceed $1.4 billion.
Adjusted earnings are expected in the range of $1.42-$1.47 per share. The Zacks Consensus Estimate of $1.46 remains a penny above the midpoint of the guided range.
Zacks Rank & Upcoming Releases
First Data currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Investors interested in the broader Business Services sector are keenly awaiting second-quarter earnings reports from key players like Avis Budget (CAR - Free Report) , Genpact (G - Free Report) and Delphi Technologies (DLPH - Free Report) . While Avis Budget and Genpact will report their quarterly numbers on Aug 7, Delphi Technologies will release results on Aug 8.
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