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Total System (TSS) Up 1.5% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Total System Services . Shares have added about 1.5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Total System 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.

Total System Q1 Earnings Beat Estimates, Revenues Miss

Total System Services, Inc.’s first-quarter 2019 earnings per share of $1.15 surpassed the Zacks Consensus Estimate by 2.9% and also surged nearly 4.5% year over year. Strong performances by all three segments — Issuer Solutions, Merchant Solutions and Consumer Solutions — have contributed to the favorable results.

Total revenues were $1.03 billion, up 5.6% year over year, led by growth across all its three segments. Net revenues (which excludes reimbursable items) of $980.3 million were up 5.6% year over year, but missed the Zacks Consensus Estimate by 1.7%.  

Total expenses of $811.3 million were up 1.5% year over year, led by 3.1% increase in cost of services.

The company reported adjusted EBITDA of $357.3 million, up 8% from the year-ago quarter.

Impressive Segment Results

Issuer Solutions

Net revenues for this segment improved 2.3% year over year to $433.5 million, driven by a 7.2% rise in total transaction year over year and 8.6% growth in traditional accounts on file.

Adjusted EBITDA of $204.9 million was up 4.7% year over year.

Merchant Solutions

Net revenues jumped 8.1% to $343 million, mainly backed by 13.8% higher point-of-sale transactions. Dollar sales volume for the segment expanded 8% year over year to $40.2 billion.

Adjusted EBITDA of $128.8 million increased 8.3% year over year.

Consumer Solutions

Net revenues for this segment amounted to $219.2 million, up 4.1%. This upside is attributable to 3.8% growth in GDV (gross domestic value).
Adjusted EBITDA of $63.7 million increased 18.7% year over year.

Strong Financial Position

Total assets increased 4.1% from the level as of Dec 31, 2018 to $7.8 billion as of Mar 31, 2019.

Total shareholders’ equity declined 9% from Dec 31, 2018 levels to $2.59 billion on Mar 31, 2019.

For the quarter, the company generated free cash flow of $147.2 million, down 11% year over year.

2019 Guidance Affirmed

The company backed its earlier provided guidance for 2019 which calls for total revenues on a GAAP basis in the range of $4.19-$4.29 billion, up 4-6%. On a non-GAAP basis, net revenues are anticipated in the $3.99-$4.09 billion band, reflecting 5-7% year-over-year growth.

GAAP EPS will likely be within $3.48-$3.63, up 11-16% from the comparable quarter last year. Adjusted EPS is forecast between $4.75 and $4.90, translating into an improvement of about 6-10%.
 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

Currently, Total System has an average Growth Score of C, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Total System has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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