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Fidelity (FIS) Q3 Earnings Miss Estimates, 2022 Guidance Cut

Fidelity National Information Services, Inc. FIS reported third-quarter 2022 adjusted earnings per share (EPS) of $1.74, missing the Zacks Consensus Estimate by a penny. However, the bottom line compared favorably with the year-ago quarter’s figure of $1.73.

Third-quarter 2022 revenues were $3,604 million, up 3% year over year. However, the top line missed the Zacks Consensus Estimate of $3,610 million. Organic revenue growth was recorded at 5% in the quarter.

The lower-than-expected third-quarter results were due to weaker-than-expected performance in its three major segments. Inflation costs affected its Banking Solutions and Merchant Solutions’ profits. The negatives were partially offset by higher volumes and lower expenses.

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

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

Fidelity National Information Services, Inc. price-consensus-eps-surprise-chart | Fidelity National Information Services, Inc. Quote

Q3 Performance

The cost of revenues was at $2,148 million in the third quarter, down from $2,178 million a year ago. Selling, general and administrative expenses decreased to $977 million from the year-ago figure of $989 million.

Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) decreased 1% to $1,575 million from the year-ago quarter’s level. The adjusted EBITDA margin declined 150 basis points (bps) to 43.7%.

On a GAAP basis, third-quarter net earnings attributable to common shareholders stood at $249 million or 41 cents per share compared with $158 million or 26 cents per share in the prior-year quarter.

Segments

Merchant Solutions’ revenues climbed 2% year over year to $1,180 million but missed the Zacks Consensus Estimate of $1,267.4 million. Organic revenue growth was at 5%. Adjusted EBITDA margin fell 430 bps to 47.4%, due to multiple causes like inflation and increased investments in e-commerce.

Revenues from Banking Solutions rose 4% year over year to $1,680 million. The reported figure missed the consensus mark of $1,760.1 million. Organic revenue growth was recorded at 6%. Adjusted EBITDA margin fell 320 bps to 42.9%, due to multiple causes like inflation, lower pandemic-related revenues and onboarding large outsourcing contracts.

Capital Market Solutions’ revenues jumped 3% from the prior-year period to $671 million but missed the Zacks Consensus Estimate of $752.7 million. Organic revenue growth was at 6%. Adjusted EBITDA margin rose 90 bps year over year to 49.3%, on expense management and continued operating leverage.

Corporate and Other segment’s revenues declined 13% year over year to $73 million but beat the consensus mark of $58.5 million.

Balance Sheet & Cash Flow

As of Sep 30, 2022, cash and cash equivalents were $1,932 million, down from $2,010 million as of Dec 31, 2021. Total assets were at $78,317 million compared with $82,931 million at 2021-end.

Long-term debt, excluding the current portion, was at $13,509 million at the third-quarter end, down from $14,825 million at 2021-end. The current portion of long-term debt was at $2,985 million while short-term borrowings were at $2,422 million.

In the first nine months of 2022, net cash provided by operations was $2,798 million, down from $3,697 million a year ago. Fidelity National reported a free cash flow of $684 million in the third quarter, down from $1,147 million a year ago.

Capital Deployment

The company repurchased shares worth $1,021 million in the third quarter of 2022 and paid dividends of $284 million. Overall, FIS returned around $1.3 billion in the quarter under review to the shareholders. It is expected to increase annual dividends by 20% until it reaches a 35% payout ratio.

Guidance

For the fourth quarter, FIS is expected to report revenues in the range of $3,656-$3,706 million, with an adjusted EPS of $1.66-$1.72. Further, for the full year of 2022, it reduced revenue guidance to $14,470-$14,520 million from the prior estimate of $14,615-$14,700 million. Adjusted EPS is now expected in the range of $6.60-$6.66, down from prior estimates of $7-$7.10.

Fidelity National expects to primarily utilize free cash flow through the end of 2023 to return capital to shareholders. It is expected to execute share buybacks of around $500 million in the fourth quarter. Earlier, the company expected to repurchase shares worth $3 billion this year, with weightage toward the second half.

Zacks Rank & Key Picks

Fidelity National currently has a Zacks Rank #4 (Sell).

Some better-ranked stocks in the broader Business Services space are Cantaloupe, Inc. CTLP, Marqeta, Inc. MQ and Shift4 Payments, Inc. FOUR. While Cantaloupe sports a Zacks Rank #1 (Strong Buy), Marqeta and Shift4 Payments carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Headquartered in Malvern, PA, Cantaloupe is a digital payments services provider. The Zacks Consensus Estimate for CTLP’s current year bottom line indicates a 366.7% increase from the prior-year reported number.

Based in Oakland, CA, Marqeta is a leading card issuing and transaction processing services provider. The Zacks Consensus Estimate for MQ’s 2022 earnings signals a 15.6% improvement from a year ago.

Allentown, PA-based Shift4 Payments works as a payment processing and technology solution provider. The Zacks Consensus Estimate for FOUR’s 2022 bottom line indicates 38.1% year-over-year growth.


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Fidelity National Information Services, Inc. (FIS) : Free Stock Analysis Report
 
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