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Alliance Data (ADS) Posts in Line Q4 Earnings, Keeps ’17 View

Zacks

Alliance Data Systems Corporation’s ADS operating earnings of $3.64 per share in the first quarter of 2017 came in line with the Zacks Consensus Estimate. Earnings, however, improved year over year by a penny.

Epsilon and Card Services delivered solid performance in the quarter. However, results at LoyaltyOne were weak.

Shares gained 0.65% in the pre-market trading session. We wait to see how the shares perform during the day.

Alliance Data Systems Corporation Price, Consensus and EPS Surprise

Alliance Data Systems Corporation Price, Consensus and EPS Surprise | Alliance Data Systems Corporation Quote


Behind the Headlines

Alliance Data’s revenues came in at $1.9 billion, up 12% year over year. The top line beat the Zacks Consensus Estimate of $1.8 billion.

Operating expenses jumped 14.6% year over year to $1.5 billion, primarily due to a rise in the cost of operations and higher provision for loan losses. Operating income improved 2.4% year over year to $352.4 million.

However, adjusted earnings before interest tax depreciation and amortization (EBITDA) were $501 million, up 2% year over year.

Segment Update

LoyaltyOne: Revenues totaled $333 million, down 6% year over year. Adjusted EBITDA declined 26% to $59 million. AIR MILES’ saw its reward miles issued and redeemed decreasing 4% each.

Epsilon: Revenues were $529 million in the quarter, up 7% year over year. Adjusted EBITDA increased 5% year over year to $85 million. The quarter witnessed growth in core product offerings revenues (Auto, CRM, Agency). The quarter witnessed the strongest revenue growth in five quarters.

Card Services: Revenues came in at $1 billion, up 22% year over year. Adjusted EBITDA was $331 million, up 8% year over year. Average credit card receivables, excluding amounts reclassified as assets held for sale, advanced 16% year over year to $15.7 billion. Net principal loss rates for the reported quarter were 6.3%, up 110 basis points year over year, chiefly due to account seasoning.

Financial Update

As of Mar 31, 2017, cash and cash equivalents was $1.87 billion compared with $1.86 billion as of Dec 31, 2016. At the end of the reported quarter, credit card and loan receivables, net, were $15.76 billion, down 4.7% from the prior-year period.

At the end of the quarter, debt increased 12.5% from year-end 2015 to $6.3 billion.

Capital expenditure at Alliance Data decreased 15.1% year over year to $46.6 million in the quarter.

Guidance

For 2017, the company expects revenues of $7.7 billion. Core earnings per share is projected to be $18.50, reflecting growth rate of about 10%.

Zacks Rank and Other Stocks

Alliance Data carries a Zacks Rank #3 (Hold).

Some better-ranked stocks from the financial transaction service space are Fiserv, Inc. FISV, Total System Services, Inc. TSS and Visa Inc. V. Each of these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

While Visa will report results today after the market close, Fiserv and Total System will report results next week.

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