A month has gone by since the last earnings report for Fiserv (FISV - Free Report) . Shares have added about 1% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Fiserv due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Fiserv Q4 Earnings Meet Estimates, Revenues Beat
Fiserv's earnings matched the Zacks Consensus Estimate while revenues surpassed the same.
Adjusted earnings per share of 84 cents came in line with the consensus mark and improved on a year-over-year basis attributable to internal revenue growth, tax leverage and operational effectiveness. The company reported its 33rd consecutive double-digit bottom-line growth.
Revenues of $1.55 billion outpaced the consensus estimate by $2.4 million and increased 2.3% year over year. Adjusted revenues of $1.47 billion increased 2% on a year-over-year basis.
On Jan 16, 2019, Fiserv announced the acquisition of First Data in a $22 billion all-stock deal. Upon closure, Fiserv shareholders will own 57.5% of the combined company and First Data shareholders will own the rest. Subject to customary closing conditions, regulatory approvals and shareholder approval from both companies, the deal is expected to close during the second half of 2019.
Revenues in Detail
Revenues at the Payments and Industry Products segment increased 9.1% year over year to $944 million. The upside was driven by solid performance of card services, biller solutions and electronic payments, which were, however, partially offset by lower periodic revenues. In the reported quarter, organic debit transaction grew in high single digits and total P2P transactions, including both Popmoney and Zelle solutions, grew 74%. Mobiliti ASP subscribers increased 21% to exceed 8 million. The company also witnessed client addition in its unified digital platform Architect.
Revenues at the Financial Institution Services segment decreased 7.9% year over year to $615 million. These revenues were hurt by the divestiture of 55% interest of the company's Lending Solutions business (the "Lending Transaction").
Internal revenue growth was 4.5% in the reported quarter, with 6% growth in the Payments segment and 3% growth in the Financial segment.
Revenues at the Total processing and Services segment increased 2.9% on a year-over-year basis to $1.30 billion, while product revenues were down 0.8% year over year to $244 million.
Adjusted operating income of $492 million was up $1 million from the year-ago quarter. Adjusted operating margin declined 60 basis points (bps) year over year to 33.4%. Adjusted operating margin was hurt by structural headwinds from the Lending Transaction and investments funded from tax savings, which collectively had a negative impact of 160 bps in the quarter.
Adjusted operating income at the Payments and Industry Products segment was $315 million, up 9.4% year over year. Adjusted operating margin of 36.4% was flat year over year.
Operating income at the Financial Institution Services segment totaled $208 million, down 11.5% year over year due to the Lending transaction. Operating margin declined 140 bps to 33.7%.
Balance Sheet and Cash Flow
Fiserv exited fourth-quarter 2018 with cash and cash equivalents of $415 million compared with $673 million at the end of the prior quarter. Long-term debt at the end of the reported quarter was $5.95 billion compared with $4.82 billion at the end of the prior quarter.
The company generated $571 million of net cash from operating activities in the reported quarter. Free cash flow was $495 million. Capital expenditures were $97 million.
During the reported quarter, Fiserv repurchased 8.9 million shares for $689 million. As of Dec 31, 2018, the company had 393 million shares outstanding and 26 million shares remaining in its share repurchase authorization.
Fiserv unveiled its guidance for full year 2019. Adjusted earnings per share are expected in the range of $3.39-$3.52, which indicates 10-14% year-over-year growth after adjusting for the Lending Transaction. The company expects internal revenue growth in a range of 4.5-5%. Additionally, the company anticipates adjusted operating margin to expand around 50 bps and free cash flow conversion to be more than 105% for 2019. Full-year adjusted effective tax rate is expected between 22-23%.
The company's 2019 guidance does not include any impact related to the proposed acquisition of First Data.
How Have Estimates Been Moving Since Then?
Fresh estimates followed a downward path over the past two months.
Currently, Fiserv has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Fiserv has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.