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First Data (FDC) Q4 Earnings Meet Estimates, Revenues Up Y/Y

Zacks

First Data Corporation FDC reported fourth-quarter 2017 adjusted earnings of 44 cents per share, which came in line with the Zacks Consensus Estimate. The figure increased 12.8% on a year-over-year basis.

Segment revenues increased 6.5% year over year to $1.94 billion, which surpassed the Zacks Consensus Estimate of $1.93 billion.

Consolidated revenues came in $3.15 billion, which were up 7% year over year. This figure includes revenues from Transaction and Processing fees (56.3%) which came in $1.77 billion, up 8% on a year-over-year basis.

Product Sales (11.3% of revenues) came in $356 million, up 3% year over year. Reimbursable debit network fees, postage and other revenues (32.3%) increased 7.2% to $1.01 billion.

Top-line growth was driven by innovative product and services portfolio and expanding enterprise business.

2017 at a Glance

In 2017, First Data reported adjusted earnings of $1.52 per share, which increased 15% compared with the year-ago figure.

Consolidated revenues for the year came in $12.05 billion, up 4% year over year. Also segment revenues increased 4% year over year to $7.42 billion.

Strong contribution from acquisitions played a significant role in driving the top line.

First Data Corporation Price, Consensus and EPS Surprise


Expanding Clientele

First Data signed a number of enterprise deals in the quarter. The company expanded its financial solution business in India by entering into agreements with SBI Cards and RBL Bank. The company also renewed PNC Merchant Services joint venture which will continue benefit the company in maintaining a strong relationship with bank partners.

First Data also acquired new clients such as Innovative Control Systems, Illinois Tollway and Dell to expand its e-commerce solutions. The company also clinched two statement printing deals with PNC and Verizon.

The company also entered into partnership with AccorHotels Group which will benefit its global and cross channel payments.

Segments in Detail

First Data has three reportable segments: Global Business Solutions (GBS), Global Financial Solutions (GFS) and Network & Security Solutions (NSS).

Global Business Solutions: This segment generated $1.13 billion, accounting for 58% of total segmental revenues. The figure grew 10.2% year over year driven by strong geographical market results across North America, Latin America, Europe, Middle East and Africa (EMEA) and Asia Pacific (APAC) regions.

Strong growth in the United Kingdom, Germany and India drove the EMEA and APAC revenues, respectively. Further, acquisitions of CardConnect and BluePay generated robust revenues in North America by improving service offerings.

Global Financial Solutions: Revenues from this segment came in $412 million, accounting for 21% of the segmental revenues, down 1% on a year-over-year basis. The decline was primarily due to lower revenues from GFS North America since the company did not receive previously disclosed termination fee in this quarter compared with $7 million received in the year-ago quarter.

Exclusion of termination fee impact would have resulted in a flat year-over-year revenues due to softness in plastic and retail private label businesses. Otherwise, First Data experienced year-over-year growth in EMEA, APAC and Latin America, which was driven by internal growth in Argentina and the United Kingdom.

Network & Security Solutions: This segment generated $406 million, accounting for 21% of segmental revenues. The figure increased 4.3% year over year which was primarily driven by strong Stored Value revenues, resulting from robust performance of card business, Clover and Gyft Solutions businesses.

Notably, client contract modification was favorable for the Gyft Solutions business.

Operating Details

In the fourth quarter, selling, general and administrative expenses increased 21% from the year-ago quarter to $571 million.

Segmental EBITDA came in $848 million which increased 10% year over year. EBITDA margin expanded 140 basis points (bps) on a year-over-year basis to 43.5%.

Operating profit came in $500 (16% of consolidated revenues) which went up 4.2% on a year-over-year basis.

Balance Sheet & Cash Flow

As of Dec 31, 2017, cash and cash equivalents were $498 million, compared with $502 million as of Sep 30, 2017. Long-term debt was $17.9 billion as compared with $17.8 billion in the last quarter.

Cash flow from operations was $465 million compared with $451 million in the previous quarter.

Further, First Data generated $280 million of free cash flow which increased 3.7% from the year ago quarter. This was driven by strong operating results and unfavorable timing impact on working capital.

Guidance

First Data expects adjusted earnings for 2018 to be between $1.35 and $1.40 per share.

For 2018, the company expects segment revenue growth between 5% and 7%. Total segment EBITDA is expected to grow in a range of 7-9%.

Effective tax rate is anticipated to be in a range of 27-29%.

Free cash flow is projected at $1.4 billion for the year 2018.

Zacks Rank and Stocks to Consider

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

A few better-ranked stocks in the broader business services sector are Broadridge Financial Solutions BR, Automatic Data Processing ADP and Fiserv FISV. While Broadridge Financial Solutions sports a Zacks Rank #1 (Strong Buy), Automatic Data Processing and Fiserv carry a Zacks Rank #2 (Buy), each. You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Broadridge Financial Solutions, Automatic Data Processing and Fiserv is projected at 10%, 11% and 11.50%, respectively.

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