A month has gone by since the last earnings report for Alliance Data Systems (ADS - Free Report) . Shares have added about 2.6% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Alliance Data due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Alliance Data Q4 Earnings Top, Revenues Miss Estimates
Alliance Data Systems Corporation operating earnings of $7.04 per share in the fourth quarter of 2018 beat the Zacks Consensus Estimate of $7.01. The bottom line improved 12% year over year on strength in Card Services.
In spite of the earnings beat, the stock declined 0.2% on disappointing guidance for 2019. Management guided EPS of $22.00, which is below the current Zacks Consensus Estimate of $24.75.
Behind the Headlines
Alliance Data generated total revenues of $2.06 billion, down 2% year over year. Pro forma revenues, adjusted for the change to net revenue presentation for AIR MILES effective Jan 1, 2018, increased 1% year over year to $2.13 billion. The top line missed the Zacks Consensus Estimate of $2.12 billion.
Pro forma revenues for the fourth quarter fell shy of the guidance attributable to strategic re-positioning at Card Services and softness at Epsilon.
Operating expenses declined 9.8% year over year to $1.5 billion primarily attributable to higher provision for loan loss. Operating income increased about 24% year over year to $574.2 million.
Adjusted EBITDA (net of funding costs) rose 18% year over year to $608 million.
Full Year Highlights
Operating earnings of $22.72 per share beat the Zacks Consensus Estimate of $22.69 and increased 17% from 2017.
Alliance Data generated total revenues of $7.8 billion, up 1% year over year. The top line missed the Zacks Consensus Estimate of $7.9 billion.
Adjusted EBITDA (net of funding costs) rose 17% year over year to $2.1 billion.
LoyaltyOne: Revenues totaled $333 million, declining 13% year over year. Adjusted EBITDA declined 16% to $67.4 million. AIR MILES reward miles issued decreased 5% while AIR MILES reward miles redeemed declined 2%.
Epsilon: Revenues totaled $613.9 million in the quarter under review, down 4% year over year because of lower margin agency and site-based display product offerings. Adjusted EBITDA of $151.3 million declined 5% year over year.
Card Services: Revenues came in at $1.1 billion, up 4% year over year. Adjusted EBITDA was $427.4 million, up 37% year over year.
As of Dec 31, 2018, cash and cash equivalents was $3.9 billion, down 7.8% from Dec 31, 2017-level.
At 2018 end, debt level was down 5.6% from 2017-end to $5.7 billion.
Cash from operations improved 6% year over year to $2.8 billion in 2018 while capital expenditure at Alliance Data declined 11.4% year over year to $199.8 million in the same period.
The board of directors approved 63 cents in quarterly dividend, payable on Mar 19, 2019 to stockholders of record as of Feb 21, 2019.
The company estimates revenues to be $8.1 billion, up 4% from 2018.
Core EPS is projected to be $22.00, down 3% from 2018 due to the divestiture of non-strategic held-for-sale portfolios that began in the second half of 2018.
Revenue and core EPS are expected to be down in mid-single digits and high single-digits, respectively.
How Have Estimates Been Moving Since Then?
Fresh estimates followed a downward path over the past two months. The consensus estimate has shifted -23.34% due to these changes.
At this time, Alliance Data has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Alliance Data has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.