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Fidelity National (FIS) Q4 Earnings Beat, Expenses Decline


Fidelity National Information ServicesFIS fourth-quarter 2018 adjusted earnings per share from continuing operations came in at $1.60, surpassing the Zacks Consensus Estimate of $1.58. Also, the bottom line improved 29% from the year-ago quarter figure of $1.24.

Lower expenses and expanding margin were the key tailwinds. Slight growth in GAAP revenues was another positive factor. However, huge outstanding debt posed a key concern.

On a GAAP basis, the company reported net earnings attributable to common stockholders of $299 million or 91 cents in the quarter compared with $934 million or $2.77 in the prior-year quarter. In fourth-quarter 2017, the company reported a large favorable adjustment due to the tax reform.

For full-year 2018, adjusted net earnings attributable to common stockholders came in at $1.7 billion or $5.23 per share compared with $1.4 billion or $4.27 per share in the prior year. The Zacks Consensus Estimate was pegged at $5.22.

Revenues Increase, Expenses Decline

GAAP revenues for the quarter came in at $2.17 billion, which increased marginally year over year. However, the figure lagged the consensus estimate of $2.21 billion.

For 2018, the company reported GAAP revenues of $8.42 billion, down 2.8% year over year. Also, the top line lagged the consensus estimate of $8.47 billion.

Organic revenue growth was nearly 3% in the quarter.

Selling, general and administrative expenses came in at $321 million, down 4.7% year over year.

Segment wise, Integrated Financial Solutions’ GAAP revenues grew 2.5% to $1.13 billion while revenues from Global Financial Solutions declined 1% to $976 million. Corporate/Other revenues decreased 20.7% to $65 million.

Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) rose nearly 5.4% year over year to $864 million while adjusted EBITDA margin expanded 200 basis points (bps) to 39.9%.

Balance Sheet & Cash Flow

As of Dec 31, 2018, cash and cash equivalents were $703 million compared with $665 million as of Dec 31, 2017. Debt outstanding was nearly $9 billion.

In the fourth quarter, net cash provided by operations was $705 million and free cash flow was $551 million.

Fidelity paid dividends worth $105 million in the quarter and repurchased 1.4 million shares at a total cost of about $150 million. As of Dec 31, 2018, the company had about $2.68 billion share repurchase authorization remaining.

Guidance for 2019

Fidelity expects organic revenue growth to be between 3.5% and 4.5% while GAAP revenues are expected to remain flat.

Adjusted earnings per share are expected to be in the band of $7.35-$7.55.

Adjusted EBITDA margin is expected to expand in the range of 150-200 bps.

Our Take

Fidelity enjoys a dominant position in financial and payments solutions business, backed by a robust product portfolio. We believe that the company is well positioned to benefit from increasing investment in digitization.

However, increasing consolidation in the banking sector, challenging environment for the Payments Solutions business and an uncertain regulatory environment are the primary headwinds.

Fidelity National Information Services, Inc. Price, Consensus and EPS Surprise

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

Performance of Other Stocks

Alliance Data Systems Corporation’s ADS operating earnings of $7.04 per share in the fourth quarter of 2018 beat the Zacks Consensus Estimate of $7.01. The bottom line improved 12% year over year on strength in Card Services.

The Western Union Company WU reported fourth-quarter 2018 operating earnings of 49 cents per share, in line with the Zacks Consensus Estimate and up 19.5% year over year.

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

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