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Alliance Data (ADS) Q2 Earnings Beat Estimates, Decline Y/Y

Zacks Equity Research

Alliance Data Systems Corporation’s ADS operating earnings of $1.86 per share for the second quarter of 2020 beat the Zacks Consensus Estimate of $1.84. However, the bottom line plunged 51% year over year.

The soft performance was attributable to lower revenues as a result of a decline in volumes due to the COVID-19 pandemic. However, lower expense limited the downside.

Behind the Headlines

Alliance Data reported total revenues of $979 million, down 27% year over year. The downside was due to lower revenues from Card Services as well as LoyaltyOne segment. The top line missed the Zacks Consensus Estimate by 21.2%.

Operating expenses decreased 20.4% year over year to $804.6 million. Operating income decreased 48.2% year over year to $174.7 million largely due to lower revenues.

Adjusted EBITDA (net of funding costs) declined 50% year over year to $156 million.

Alliance Data Systems Corporation Price, Consensus and EPS Surprise

 

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

Alliance Data Systems Corporation price-consensus-eps-surprise-chart | Alliance Data Systems Corporation Quote

Segment Update

LoyaltyOne: Revenues totaled $151 million, down 40% year over year attributable to fewer short-term loyalty programs due to the impact of COVID-19 as well as divestment of Precima. Adjusted EBITDA decreased 11% to $45 million.

AIR MILES reward miles issued decreased 26% reflecting a decline in discretionary spending, including credit card spend and delays in promotions by sponsors. AIR MILES reward miles redeemed declined 42%, reflecting the impact of the pandemic on travel-related categories, partially offset by strength from merchandise redemptions.

BrandLoyalty revenues decreased 44% or $70 million due to a decline in programs.

Card Services: Revenues were $828 million, down 24% year over year attributable to lower sales volumes and increased fee waivers due to COVID-19. Adjusted EBITDA was $127 million, down 56% year over year, attributable to lower revenues. However, decline in operating expenses and the $7 million year-over-year decrease in the provision for loan loss limited the downside.

Expense Reduction Programs Update

Expense reduction programs achieved about $140 million in cost savings in the first half of 2020. The company estimates additional cost savings of more than $100 million in second half of 2020.

Financial Update

As of Jun 30, 2020, cash and cash equivalents was $4.9 billion, up 28% from Dec 31, 2019-level.

At quarter end, the debt level was up 12.3% from 2019-end to $3.2 billion.

Cash from operations decreased 2% year over year to $1.1 billion in the first six months of the year. Capital expenditure at Alliance Data declined 71.7% year over year to $26.1 million in the same period.

Dividend Update

The board of directors approved quarterly dividend of 21 cents to be paid out on Sep 18 to stockholders of record as of Aug 14, 2020.

Zacks Rank

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

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

Upcoming Releases

Visa V is set to report fiscal third-quarter results on Jul 28. The Zacks Consensus Estimate for earnings is pegged at $1.02.

Global Payments Inc. GPN is slated to release second-quarter earnings on Aug 3. The Zacks Consensus Estimate for earnings is pegged at $1.15.

The Western Union Company WU is set to report second-quarter earnings on Aug 4. The Zacks Consensus Estimate for earnings is pegged at 36 cents.

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