Fiserv (FISV) Q1 Earnings Beat Estimates, Revenues Miss

Fiserv, Inc. (NASDAQ:FISV) reported mixed first-quarter 2018 financial results, wherein the company’s bottom line surpassed the Zacks Consensus Estimate but the top line missed the same.

Fiserv’s first-quarter 2018 adjusted earnings came in at 76 cents per share compared with 62 cents in the year-earlier quarter. Earnings beat the Zacks Consensus Estimate by 3 cents. The bottom-line growth can be attributed to higher revenue growth, operational efficiency and the U.S. tax reform that decreased the company’s effective tax rate to 19.4% in the reported quarter.

Total first-quarter 2018 revenues of $1,440 million missed the Zacks Consensus Estimate of $1,442.1 million. However, the figure increased 3.3% year over year. The year-over-year growth was driven by strength in the Payments and Industry Products segment.

We observe that shares of Fiserv have rallied 12.8% over the past six months, significantly outperforming the S&P 500’s and industry’s gain of 2.6% and 12.5%, respectively.

Revenues in Detail

Internal revenues grew 3% in the reported quarter, with 5% growth in the Payments segment and 1% growth in the Financial segment.

Payments and Industry Products segment adjusted revenues increased 6.9% year over year to $770 million. Segment revenues grew on the back of strong performance of card services and electronic payments business.

Financial Institution Services segment revenues decreased 0.6% year over year to $616 million. Segment revenues declined due to divestiture of the Australian item processing business and its Lending business.

Total processing and services revenues increased 5.1% on a year-over-year basis to $1,238 million while product revenues declined 6.5% year over year to $202 million.

Operating Results

Operating income for first-quarter 2018 was $608 million compared with $365 million in the year-ago quarter. Operating margin was 42.2% compared with 26.2% in the year-ago quarter.

Operating income for Payments and Industry Products was $271 million compared with $259 million in the year-ago quarter. Operating margin was 32.2% compared with 32.7% in the year-ago quarter.

Operating income for Financial Institution Services was $202 million compared with $196 million in the year-ago quarter. Operating margin was 32.8% compared with 31.6% in the year-ago quarter.

Operating expenses declined to $832 million from $1,029 million in the year-ago quarter.

Balance Sheet and Cash Flow

Fiserv exited first-quarter 2018 with cash and cash equivalents of $382 million compared with $308 million in the year-ago quarter. As of Mar 31, 2018, long-term debt was $4,603 million compared with $4,897 million at the end of 2017.

The company generated $372 million of cash from operating activities in the reported quarter compared with $463 million in the year-ago quarter. Free cash flow was $316 million in the reported quarter compared with $366 million in the year-ago quarter.

During the reported quarter, Fiserv repurchased 5.7 million shares at an aggregate cost of $398 million. As of Mar 31, 2018, the company had 15.8 million shares available for buyback under its share repurchase authorization.

Expanding Clientele

Fiserv’s DNA platform signed seven new clients in the quarter.

Mobiliti ASP subscribers grew 7% sequentially and 25% year over year to 7.2 million. The Mobiliti business expanded more than 50%.

Zelle looked strong on the back of new clients and deals in first-quarter 2018. With Navy Federal onboard, three of the five largest credit unions in the country have been signed as full Zelle clients. Further, Zelle transactions grew more than 80% sequentially in the quarter. With this bullish backdrop, the company is optimistic about Zelle’s prospects.

Debit transaction growth in the quarter was in mid single digits and P2P transactions grew more than 20% year over year.

Business Sale & Stock Split

In first-quarter 2018, Fiserv sold its 55% stake in Lending Solutions business to funds affiliated with Warburg Pincus LLC. Fiserv received total sale proceeds of $419 million from the deal. The company will retain the remaining 45% stake in the Lending Solutions business.

On Mar 19, 2018, the company completed a two-for-one stock split. In January 2018, Fiserv completed the sale of the retail voucher business for $50 million.

2018 Outlook

Fiserv reaffirmed its guidance for internal revenue growth, tax rate and free cash flow conversion for 2018.

Internal revenue growth is projected to be 4.5% for 2018. Adjusted effective tax rate is expected to be between 22% and 23% for 2018. Free cash flow conversion is projected to be within a range of 106% to 111% for the full year.

Additionally, the company anticipates adjusted operating margin to expand between 10 basis points and 30 basis points for the full year. Further, Fiserv expects adjusted earnings between $3.02 and $3.15 per share with growth of 22% to 27% from 2017.

Zacks Rank & Upcoming Releases

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

Investors interested in the broader Business Services sector are keenly awaiting earnings reports from key players like Gartner, Inc. (NYSE:IT) , The Dun & Bradstreet Corp. (NYSE:DNB) and Broadridge Financial Solutions Inc. (NYSE:BR) . While Garter and Dun & Bradstreet will release first-quarter 2018 results on May 8 and May 9, respectively, Broadridge will report third-quarter fiscal 2018 numbers on May 8.

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