Total System (TSS) Q4 Earnings Beat On Decline In Expenses

Total System Services, Inc.’s (NYSE:TSS) fourth-quarter 2018 earnings per share of $1.08 surpassed the Zacks Consensus Estimate by 1.9% and also surged nearly 31.5% year over year. Strong performances by all three segments have contributed to this favorable result.

Total revenues were $1.02 billion, down 20% year over year, primarily due to the adoption of Accounting Standards Codification (ASC) 606.
Net revenues of $959.3 million were up 10.2% year over year.

Total expenses of $808.3 million were down 26.5% year over year, led by 32% decline in cost of services.

The company reported adjusted EBITDA of $346 million, up 18% from the year-ago quarter.

Full-Year Highlights

For 2018, net revenues of $3.82 billion increased 12.2% year over year. The top line is ahead of the company’s guided range of $3.7-$3.8 billion.

Earnings per share of $4.47 rose 32.7% year over year and came in at the upper end of the company’s guided range of $4.41-$4.47.

Impressive Segment Results

Issuer Solutions

In the fourth quarter, net revenues for this segment improved 6.1%year over year to $439.3 million, driven by a 12.5% rise in total transaction year over year and 7.4% growth in traditional accounts on file.

Operating income of $151.8 million was up 4.2% year over year. Operating margin of 34.6% contracted 60 basis points (bps) from the year-earlier period.

Merchant Solutions

Net revenues jumped 18.4% to $334.6 million, mainly backed by higher point-of-sale transactions. Dollar sales volume for the segment expanded 26.7% year over year to $41.1 billion.

Operating income augmented 30.9% to $124.2 million while operating margin grew 350 basis points to 37.1% from the prior-year period.

Consumer Solutions

Net revenues for this segment amounted to $199.8 million, up 7.2%. This upside is attributable to 10.6% growth in GDV (gross domestic value) and a solid uptick across all four distribution channels.

Operating income was up 14.3% to $44.4 million while operating margin expanded 140 basis points to 22.2%.

Strong Financial Position

Total assets jumped 18% from the level as of Dec 31, 2017 to $7.5 billion as of Dec 31, 2018.

Total shareholders’ equity climbed 15.4% year over year to $2.6 billion on Dec 31, 2018.

Owing to accelerated debt repayments and 14.4% adjusted EBITDA growth, the company was able to lower its debt leverage ratio by three times.

For the full year, the company generated free cash flow of $799.5 million, up 21% year over year.

Share Buyback

During the quarter under review, the company repurchased 2 million shares worth approximately $172 million.

2019 Guidance

Driven by strong 2018 results and favorable expectations for 2019, the company provided its preliminary earnings guidance. It estimates total revenues on a GAAP basis in the range of $4.19-$4.29 billion, up 4-6%. On a non-GAAP basis, net revenues are anticipated in the $3.99-$4.09 billion band, reflecting 5-7% year-over-year growth.

GAAP EPS will likely be within $3.48-$3.63, up 11-16% from the comparable quarter last year. Adjusted EPS is forecast between $4.75 and $4.90, translating into an improvement of about 6-10%.

Zacks Rank

Total System Services carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stocks to Consider

Some stocks worth considering in the same space are First Data Corp. (NYSE:FDC) , Mastercard Inc. (NYSE:MA) and Virtu Financial Inc. (NASDAQ:VIRT) , each likely to deliver a positive surprise for the fourth quarter based on a favorable Zacks Rank #3 (Hold) and an Earnings ESP of +3.87%, 1.45%, 23.36%, respectively.

Zacks' Top 10 Stocks for 2019

In addition to the stocks discussed above, wouldn't you like to know about our 10 finest buy-and-holds for the year?

From more than 4,000 companies covered by the Zacks Rank, these 10 were picked by a process that consistently beats the market. Even during 2018 while the market dropped -5.2%, our Top 10s were up well into double-digits. And during bullish 2012 – 2017, they soared far above the market's +126.3%, reaching +181.9%.

This year, the portfolio features a player that thrives on volatility, an AI comer, and a dynamic tech company that helps doctors deliver better patient outcomes at lower costs.

See Stocks Today >>