Fidelity National (FIS) Q3 Earnings Beat Estimates, Costs Up

Fidelity National Information Services’ (NYSE:FIS) third-quarter 2019 adjusted earnings per share from continuing operations came in at $1.43 that surpassed the Zacks Consensus Estimate of $1.35. The bottom line compares favorably the year-ago quarter figure of $1.33.

Organic revenue growth and expanding margin were the key tailwinds. Also, strong liquidity position was a positive factor. However, significant rise in expenses posed a key concern.

On a GAAP basis, the company reported net earnings attributable to common stockholders of $154 million or 29 cents compared with $154 million or 47 cents in the prior-year quarter.

Organic Revenues Increase, Expenses Up

GAAP revenues for the quarter came in at $2.82 billion, up 35% year over year. The figure topped the consensus estimate of $2.8 billion.

Organic revenues went up nearly 5% in the quarter.

Selling, general and administrative expenses were $757 million, up significantly year over year.

Segment wise, Merchant Solutions’ GAAP revenues grew considerably to $720 million, and revenues from Banking Solutions rose 4% to $1.49 million. Capital Market Solutions’ revenues climbed 4% to $611 million.

Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) increased to $1.19 billion from $808 million in year-ago quarter. Adjusted EBITDA margin expanded 350 basis points to 42.2%.

Balance Sheet & Cash Flow

As of Sep 30, 2019, cash and cash equivalents were $1.31 billion compared with $703 million as of Dec 31, 2018. Debt outstanding was nearly $20.2 billion.

In the third quarter, net cash provided by operations was $921 million and free cash flow nearly doubled from the prior-year quarter to $640 million.

Fidelity paid dividends worth $215 million in the reported quarter.

Fourth-Quarter 2019 Guidance

Fidelity expects GAAP revenues to be between $3,295 million and $3,335 million.

Adjusted earnings per share are expected to be in the band of $1.50-$1.55. Adjusted EBITDA is expected in the range of $1,480 million to $1,510 million.

GAAP net earnings are likely to be $125-$280 million, and earnings per share are projected to be 20 cents to 45 cents.

Our Viewpoint

Fidelity reported a decent quarter with higher organic revenues and strong liquidity position. 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 merger 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 National Information Services, Inc. Price, Consensus and EPS Surprise

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

Hilltop Holdings Inc.’s (NYSE:HTH) third-quarter 2019 earnings per share of 86 cents easily outpaced the Zacks Consensus Estimate of 53 cents. Also, the figure compares favorably with the prior-year quarter’s earnings of 38 cents.

Cullen/Frost Bankers, Inc. (NYSE:CFR) delivered third-quarter 2019 positive earnings surprise of 2.4%. Earnings per share of $1.73 surpassed the Zacks Consensus Estimate of $1.69. However, the bottom line compares unfavorably with the prior-year quarter figure of $1.78 per share.

New York Community Bancorp, Inc. (NYSE:NYCB) reported third-quarter 2019 earnings per share of 19 cents, in line with the Zacks Consensus Estimate. The figure, however, compares unfavorably with the prior-year quarter figure of 20 cents.

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