Alliance Data (ADS) Q4 Earnings Top, Revenues Miss Estimates

Alliance Data Systems Corporation’s (NYSE:ADS) 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.

Alliance Data Systems Corporation Price, Consensus and EPS Surprise

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.

Segment Update

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.

Financial Update

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.

Dividend Update

The board of directors approved 63 cents in quarterly dividend, payable on Mar 19, 2019 to stockholders of record as of Feb 21, 2019.

Guidance

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.

Q1

Revenue and core EPS are expected to be down in mid-single digits and high single-digits, respectively.

Zacks Rank

Alliance Data 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 Some Other Finance Sector Stocks

Among other players from the finance sector that have reported fourth-quarter earnings so far, Intercontinental Exchange, Inc. (NYSE:ICE) and The Travelers Companies Inc. (NYSE:TRV) beat the Zacks Consensus Estimate for earnings while Principal Financial Group, Inc. (NASDAQ:PFG) missed the same.

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