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Total System (TSS) Beats Q1 Earnings Estimates, Guides Up

Zacks Equity Research

Total System Services, Inc.’s TSS first-quarter 2017 earnings per share of 79 cents surpassed the Zacks Consensus Estimate by 8.2% and grew 27% year over year.

Revenues of $1.185 billion missed the Zacks Consensus Estimate of $1.206 billion, but were up 60% year over year.

Total expenses of $1.02 billion increased a substantial 73% year over year.

Segments Results

In the last reported quarter, the company had mentioned that it has made structural changes combining its North America and International segments into a new reporting segment – Issuer Solutions – for better business alignment. This is the first reported quarter for this newly formed segment.  Net revenue for this segment increased 2.4% year over year to $387.26 million. Total transaction for this segment was $4.88 billion in the reported quarter, up 6.3% year over year.

Operating income of $133.8 million for the segment was down 0.9% year over year. Operating margin of 34.57% decreased from 35.73% in the year-ago quarter. The company expects net revenue for the issuer segment to grow in the 5% to 7% constant currency growth rate range and margin to expand by 100 plus basis points in 2017.

Merchant Services

Net revenue increased significantly year over year to $260.6 million from $120.6 million in the year-ago quarter. Dollar sales volume for this segment grew significantly year over year to $29.12 billion from $11.78 billion in the year-ago quarter.

Operating income surged significantly year over year to $91.3 million. Operating margin improved to 35.03% from 31.8% in the year-ago quarter. The company expects the segment to grow net revenue organically in the 7% to 9% range.

During the quarter, the company completed the purchase of an additional 10% ownership of the Central Payment Joint Venture taking its ownership level to 85%.


Net revenue increased 6.7% year over year to $197.5 million in the reported quarter. Gross dollar volume for this segment was $9.61 billion, up 4.9% year over year. The company renewed its agreement with Dollar General for four more years.

Operating income grew 15.3% year over year to $48.6 million. Operating margin increased to 24.64% from 22.81% in the prior-year quarter.

The company’s revised expectation for 2017 calls for net revenue growth in the 6% to 8% band, up from the previous expectation of 3% to 5%.

The company expects segment margin in the 21% to 23% range for the full year of 2017, up from the previous expectation of 19% to 21%.

Total System Services, Inc. Price, Consensus and EPS Surprise

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

Financial Update

Total assets decreased slightly to $6.35 billion as of Mar 31, 2017 from $6.37 billion at year-end 2016. Total shareholder’s equity climbed to $2.14 billion on Mar 31, 2017 from $2.10 billion at the end of 2016.

Free cash flow totaled $227.7 million as of Mar 31, 2017 compared with $101.44 million in the year-ago period.

2017 Guidance Up

On the back of strong first-quarter earnings results and a six-month delay in the effective date of the CFPB's rule governing prepaid accounts, the company pulled up its 2017 earnings guidance. It now expects total revenue on a GAAP basis in the range of $4.77 billion to $4.87 billion (previous expectation $4.75–$4.85 billion,) reflecting an increase of 14–17%. On a non-GAAP basis, net revenue is anticipated in the range of $3.295 billion to $3.395 billion ($3.28 billion–$3.38 billion),reflecting a rise of 8–12%.

GAAP EPS is projected in the range of $2.25–$2.32 ($2.14–$2.21), representing a rise of 30–34%. Adjusted EPS attributable to the company’s common shareholders is estimated in the range of $3.16–$3.26 ($3.05–$3.15), reflecting an increase of about 13–17%.

Our Take

Columbus, GA based Total System continues to benefit from its long-term processing contracts, as it focuses on retaining and acquiring clients. Further, it should benefit from the TransFirst acquisition which was completed in Apr 2016. Among others, stiff competition and huge cash outlays on acquisitions keep us cautious.

The stock caries a Zacks Rank #2 (Buy). Other stocks with the same rank in this space include Fiserv Inc. FISV, Visa Inc. V and Green Dot Corporation GDOT.You can see the complete list of today’s Zacks #1 Rank stocks here.

Fiserv has an Earnings ESP of +0.85%. Its favorable rank and a positive Earnings ESP makes us confident of an earnings beat when it reports earnings on Apr 26 after market close. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Visa reported strong Jan–Mar 2017 quarter earnings, beating estimates by 8.86%.

Yet another stock, Green Dot Corporation is expected to report earnings on May 3. In the last quarter it delieverd a positive earnings surprise of 100%.

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