Alliance Data Earnings Beat, Revenues In Line; Guides Low - Analyst Blog

Alliance Data Systems Corporation (ADS) reported adjusted earnings per share (EPS) of $3.23 in the fourth quarter of 2014, surpassing the Zacks Consensus Estimate of $3.10. Earnings also improved 44% year over year.

Including one-time items, net income came in at 86 cents, down 52% year over year.

Alliance Data posted better-than-expected results courtesy of strong performance across all segments.

Operational Performance

During the quarter under review, Alliance Data generated revenues of $1.5 billion. Revenues were up 30% year over year, driven by double-digit increases in LoyaltyOne, Epsilon and Private Label Services and Credit. The top line was almost in line with the Zacks Consensus Estimate.

Operating expenses increased nearly 43% year over year to $1.3 billion in the quarter, primarily due to an increase in cost of operations, higher provision for loan losses, depreciation and amortization, and earn-out obligation.

Fourth-quarter adjusted earnings before interest tax depreciation and amortization (EBITDA) were $383 million, up 32% year over year. The upside was aided by an improvement in all three segments.

The magnitude of increase in total revenue was lower than the magnitude of increase in expenses, leading to a decrease in operating income by 15% year over year to $212.5 million.

Full-Year Review

Operating net income of $11.86 per share surpassed the Zacks Consensus Estimate of $11.74 and improved 25% year over year.

Revenues increased 23% year over year to $5.3 billion.

Segment Update

LoyaltyOne: Segment revenues totaled $397.8 million, up 62% year over year. Adjusted EBITDA was $95.5 million, up 41% from the year-ago quarter. AIR MILES’ reward miles issued increased 11% but reward miles redeemed decreased 7%.

Epsilon: Segment revenues were $440.3 million in the fourth quarter, up 18% year over year. Adjusted EBITDA was $101.9 million, up 9% year over year.

Private Label Services and Credit: Revenues from the segment came in at $653.4 million, up 24% year over year. Adjusted EBITDA was $212.4 million, up 43% year over year.

Financial Update

Alliance Data exited 2014 with cash and cash equivalents of $1.1 billion, up from $0.96 billion at 2013 end.

Debt increased to $4.2 billion at year-end 2014 from $2.80 billion at 2013 end.

Cash from operations in 2014 was $1.3 billion, up from $0.99 billion in 2013.

Capital expenditure of Alliance Data increased to $158.7 million in 2014 from $135.4 million in 2013.

2015 Guidance

Alliance Data expects to generate revenues of $6.5 billion, up 23% from 2013. However, this indicates a decrease from $6.625 billion guided earlier due to the strengthening of the U.S. dollar.

Core EPS is expected at $14.80, suggesting an 18% increase over 2014.

For the first quarter of 2015, Alliance Data expects revenues of about $1.54 billion (up 25% year over year) and core EPS of approximately $3.40 (up 22% year over year).

Our Take

Alliance Data has outperformed earnings expectations and has shown an improvement year over year.

The company is well poised for the upcoming quarters based on continued strong performances across its segments and a solid financial position.

Continued focus on strategic acquisitions to grow inorganically, the national rollout of its dotz coalition loyalty program in Brazil and inking of long-term deals are expected to drive solid numbers ahead.

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

Other Stocks to Consider

Better-ranked service providers include Fiserv, Inc. (FISV), Global Payments Inc. (GPN) and WNS (Holdings) Ltd. (WNS). All these carry a Zacks Rank #2 (Buy).

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