Can Total System (TSS) Pull Off A Surprise In Q3 Earnings?

Payment processor and financial services provider, Total System Services, Inc. (NYSE:TSS) is scheduled to release third-quarter financial results after the closing bell on Oct 25.

In the last reported quarter, the company beat the earnings estimate by 1.47%. Moreover, the company posted a positive earnings surprise in three out of the last four quarters, with an average beat of 2.97%. Let’s see how things are shaping up for this announcement.

Factors at Play

Management stated during the second quarter earnings conference call that there are three headwinds expected in the third quarter. First, the tax effect from the prior year will need adjustment. Second, the expected non-TransFirst one-time expense of $5 million to $7 million primarily related to severance would reduce adjusted earnings by approximately 2 cents per share. And third, the potential currency impact in the back half of the year could reduce net revenue yearly growth rate by approximately 100 basis points with a potential 2 cent negative impact on third-quarter earnings per share.

Other than this, we expect strong revenue and transaction growth with increased accounts on file from the company’s international business.
The company’s North America segment will see higher revenue from the cross-sell of products and services. The company continues to pay significant attention on cross-selling existing products and services to its current clients, and delivering and cross-selling new products and services in the longer term. These new products and services will be delivered through the transformation of technologies and innovation, currently underway at the company.

The NetSpend segment will see top-line growth from significant investments in this business during the fourth quarter of 2015.
Also, the company expects continued strength in its business with China Union Pay.

However, increased expenses, and significant exposure to interest rate risks associated with the investment of available cash raise caution.
The company has undertaken efficiency initiatives aimed at achieving the $15 million synergy goal for merchants in 2017. As a result of this process, the company is expected to have incurred some one-time related expenses in the third quarter primarily related to severance that will drain earnings.

Earnings Whispers

Our proven model does not conclusively show that Total System is likely to beat the Zacks Consensus Estimate this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or at least 2 (Buy) or 3 (Hold) for this to happen. But this is not the case here as elaborated below.

Zacks ESP: The Most Accurate estimate of Total System is pegged at 67 cents per share, in line with the Zacks Consensus Estimate. The Earnings ESP is thus 0.00%.

Zacks Rank: Total System carries a Zacks Rank #3. Though a favorable Zacks Rank increases the predictive power of ESP, the company’s 0.00% ESP makes surprise prediction difficult.

TOTAL SYS SVC Price and EPS Surprise

TOTAL SYS SVC Price and EPS Surprise | TOTAL SYS SVC Quote

Stocks to Consider

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Ally Financial Inc. (NYSE:ALLY) is scheduled to report third-quarter earnings results on Oct 26. The company has an Earnings ESP of +1.7% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

AerCap Holdings N.V. (NYSE:AER) has an earnings ESP of +7.8% and a Zacks Rank #3. The company is scheduled to report third-quarter earnings results on Nov 8.

RenaissanceRe Holdings Ltd. (NYSE:RNR) has an Earnings ESP of +3.59% and a Zacks Rank #3. The company is scheduled to report third-quarter earnings results on Nov 1.

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