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Fidelity National (FIS) Q2 Earnings as Expected, Costs Down

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Fidelity National Information Services’ (FIS - Free Report) second-quarter 2019 adjusted earnings per share from continuing operations came in at $1.78, in line with the Zacks Consensus Estimate. Notably, the bottom line compares favorably the year-ago quarter figure of $1.23.

Organic revenue growth, lower expenses and expanding margin were the key tailwinds. However, huge outstanding debt posed a headwind. Also, poor performance of Global Financial Solutions segment was a key concern.

On a GAAP basis, the company reported net earnings attributable to common stockholders of $154 million or 47 cents in the quarter compared with $212 million or 64 cents in the prior-year quarter.

Organic Revenues Increase, Expenses Down

GAAP revenues for the quarter came in at $2.11 billion, up slightly year over year. The figure is in line with the consensus estimate.

Organic revenues went up nearly 5% in the quarter.

Selling, general and administrative expenses came in at $317 million, down 6.5% year over year.

Segment wise, Integrated Financial Solutions’ GAAP revenues grew 5% to $1.18 billion, while revenues from Global Financial Solutions declined 4% to $865 million. Corporate/Other revenues slipped 18% to $68 million.

Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) increased nearly 5% year over year to $794 million, while adjusted EBITDA margin expanded 170 basis points (bps) to 37.6%.

Balance Sheet & Cash Flow

As of Jun 30, 2019, cash and cash equivalents were $9.8 billion compared with $703 million as of Dec 31, 2018. Debt outstanding was nearly $18.2 billion. Cash and cash equivalents and debt were mainly driven by the U.S. and European-based debt financing related to the Worldpay transaction.

In the second quarter, net cash provided by operations was $526 million and free cash flow was $413 million.

Fidelity paid dividends worth $113 million in the reported quarter.

Combined (FIS and Worldpay as a combined entity) Guidance

Third-Quarter 2019

Fidelity expects Non-GAAP as well as GAAP revenues to be between $2,775 and $2,800 million.

Adjusted earnings per share (Prior Method), excluding amortization of purchase accounting intangibles only, are expected in the band of $1.33-$1.37. Further, adjusted earnings per share (New Method), excluding all depreciation and amortization, are projected at $1.69-$1.72.

Adjusted EBITDA is anticipated in the range of $1,145 and $1,160 million.

GAAP net earnings are likely to be $75-$300 million, while earnings per share are estimated to be $0.14-$0.57.

Fourth-Quarter 2019

Fidelity expects Non-GAAP as well as GAAP revenues to be between $3,285 and $3,330 million.

Adjusted earnings per share (Prior Method) excluding amortization of purchase accounting intangibles only are expected to be in the band of $1.47-$1.53. Furthermore, adjusted earnings per share (New Method) excluding all depreciation and amortization are predicted in the $1.80-$1.84 range.

Adjusted EBITDA is expected in the range of $1,470 million to $1,500 million.

GAAP net earnings are likely to be $300-$510 million, while earnings per share are projected at $0.48-$0.82.

Our Viewpoint

Fidelity reported a decent quarter with higher organic revenues and prudent cost management. The company enjoys a dominant position in financial and payments solutions business, backed by a robust product portfolio. We believe the company is well positioned to benefit from increasing investment in digitization.

Notably, the combination of Fidelity and Worldpay, which are leaders in their respective markets in modernization investments, will provide clients of both organizations access to a wider portfolio of digital assets for accelerating revenue growth, streamlining operations and creating better engagement with customers.

However, increasing consolidation in the banking sector, a challenging environment for the Payments Solutions business and an uncertain regulatory environment are key headwinds.

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

Performance of Other Banks

Alliance Data Systems Corporation’s (ADS - Free Report) operating earnings of $3.83 per share for the second quarter of 2019 missed the Zacks Consensus Estimate of $4.12. The bottom line declined 12% year over year. Soft performance of the Card Service segment weighed on the results.

Visa Inc. (V - Free Report) reported third-quarter fiscal 2019 earnings of $1.37 per share, beating the Zacks Consensus Estimate by 3.1%. Also, the bottom line improved 14% year over year. The results were driven by growth in payments volume, cross-border volume and processed transactions.

Total System Services came out with second-quarter 2019 earnings of $1.27 per share, beating the Zacks Consensus Estimate of $1.21. This compares favorably with earnings of $1.11 per share reported a year ago. These figures are adjusted for non-recurring items.

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