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Total System Services (TSS) Q4 Earnings: What's in Store?

Zacks Equity Research

 Total System Services, Inc.’s TSS fourth-quarter results, expected on Jan 29, 2019, should see a dent in revenues due to the adoption of Accounting Standards Codification (ASC) 606.

Adoption of ASC 606 has resulted in the change of gross versus net presentation of interchange and payment network fees. Due to the application of this accounting standard, the company expects earnings per share to decline by 3 cents to 4 cents per share for full-year 2018. Total revenues and net revenues should also be adversely affected. The Zacks Consensus Estimate for revenues is $968.6 million, reflecting a decline of 24% year over year.

The company derives 20% of its revenues from international operations. Therefore strengthening of dollar against Euro or Canadian dollar will likely dent the company’s overseas revenues.

Let’s see how the company’s segment wise performance will likely be:

Total System’s Issuer Solutions segment should see top-line growth from an increase in Total Accounts on File (AoF), led by new business and internal growth. The Zacks Consensus Estimate for total AoF is 841 million, reflecting an increase of 5.4% year over year. Focus on new product initiatives, new contract agreements, extension and renewal of old ones, technology modernization and integration activities will further aid revenues from the segment.

The company’s Consumer Solution segment is likely to deliver revenue growth from an increase in gross dollar volume and higher debit active cards. Contract extensions for several significant partnership agreements signed recently should drive the top line. The Zacks Consensus Estimate for total revenues from the segment is $202 million, up 8.6% year over year.

In the company’s Merchant Solutions segment, the continued shifting of business mix toward integrated payments has been a noticeable impact on the segment’s financials, helping drive double-digit revenue growth. The acquisition of Cayan, completed earlier during 2018, should be accretive to the segment’s earnings. The Zacks Consensus Estimate for total revenues from the segment is $353 million, up 24.7% year over year.

Nevertheless, increase in earnings due to higher segmental revenues will be partly offset by a rise in expenses due to investments made to enhance the company’s infrastructure, longer-term product offerings and technological capabilities. These should shoot up expenses and weigh on margins to some extent.

The bottom line should gain from a lower tax rate. The primary reasons for the lower effective income tax rate should be the lower 2018 statutory Federal income tax rate as enacted by the Tax Act.

Company’s Guidance

For full-year 2018, the company expects earnings per share in the range of $4.41 to $4.47 and revenues in the range of $3.79 billion to $3.84 billion.

Earnings Surprise History

Total System has an impressive earnings surprise history. Its earnings have surpassed estimates in each of the trailing four quarters, the average positive surprise being 7.12%.

Total System Services, Inc. Price and EPS Surprise

Total System Services, Inc. Price and EPS Surprise | Total System Services, Inc. Quote

Now, let’s have a look at what our quantitative model predicts:

Chances of Total System beating the Zacks Consensus Estimate in the fourth quarter are less. This is because it doesn’t have the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: The Earnings ESP for Total System is 0.00%.

Zacks Rank: Total System currently has a Zacks Rank #4. We caution against the Sell-rated stocks (#4 or 5) going into an earnings announcement, especially when the company is seeing negative estimate revisions. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stocks That Warrant a Look

Here are a few finance stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat in the upcoming release.

FleetCor Technologies, Inc. FLT has an Earnings ESP of +0.53% and carries a Zacks Rank #3. The company is expected to report fourth-quarter results on Feb 14.

First Data Corp. FDC has an Earnings ESP of +6.29% and a Zacks Rank #3. The company is expected to report fourth-quarter earnings on Jan 30.

TCF Financial Corp. TCF has an Earnings ESP of +1.5% and a Zacks Rank #3. The company is expected to report fourth-quarter earnings on Jan 30.

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