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Total System (TSS) Q4 Earnings Beat on Decline in Expenses

Zacks Equity Research

Total System Services, Inc.’s TSS fourth-quarter 2018 earnings per share of $1.08 surpassed the Zacks Consensus Estimate by 1.9% and also surged nearly 31.5% year over year. Strong performances by all three segments have contributed to this favorable result.

Total revenues were $1.02 billion, down 20% year over year, primarily due to the adoption of Accounting Standards Codification (ASC) 606.
Net revenues of $959.3 million were up 10.2% year over year.

Total expenses of $808.3 million were down 26.5% year over year, led by 32% decline in cost of services.

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

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

 

The company reported adjusted EBITDA of $346 million, up 18% from the year-ago quarter.

Full-Year Highlights

For 2018, net revenues of $3.82 billion increased 12.2% year over year. The top line is ahead of the company’s guided range of $3.7-$3.8 billion.  

Earnings per share of $4.47 rose 32.7% year over year and came in at the upper end of the company’s guided range of $4.41-$4.47.

 Impressive Segment Results

Issuer Solutions

In the fourth quarter, net revenues for this segment improved 6.1%year over year to $439.3 million, driven by a 12.5% rise in total transaction year over year and 7.4% growth in traditional accounts on file.

Operating income of $151.8 million was up 4.2% year over year. Operating margin of 34.6% contracted 60 basis points (bps) from the year-earlier period.

Merchant Solutions

Net revenues jumped 18.4% to $334.6 million, mainly backed by higher point-of-sale transactions. Dollar sales volume for the segment expanded 26.7% year over year to $41.1 billion.

Operating income augmented 30.9% to $124.2 million while operating margin grew 350 basis points to 37.1% from the prior-year period.

Consumer Solutions

Net revenues for this segment amounted to $199.8 million, up 7.2%. This upside is attributable to 10.6% growth in GDV (gross domestic value) and a solid uptick across all four distribution channels.

Operating income was up 14.3% to $44.4 million while operating margin expanded 140 basis points to 22.2%.

Strong Financial Position

Total assets jumped 18% from the level as of Dec 31, 2017 to $7.5 billion as of Dec 31, 2018.

Total shareholders’ equity climbed 15.4% year over year to $2.6 billion on Dec 31, 2018.

Owing to accelerated debt repayments and 14.4% adjusted EBITDA growth, the company was able to lower its debt leverage ratio by three times.

For the full year, the company generated free cash flow of $799.5 million, up 21% year over year.

Share Buyback

During the quarter under review, the company repurchased 2 million shares worth approximately $172 million.

2019 Guidance

Driven by strong 2018 results and favorable expectations for 2019, the company provided its preliminary earnings guidance. It estimates total revenues on a GAAP basis in the range of $4.19-$4.29 billion, up 4-6%. On a non-GAAP basis, net revenues are anticipated in the $3.99-$4.09 billion band, reflecting 5-7% year-over-year growth.

GAAP EPS will likely be within $3.48-$3.63, up 11-16% from the comparable quarter last year. Adjusted EPS is forecast between $4.75 and $4.90, translating into an improvement of about 6-10%.

Zacks Rank

Total System Services carries a Zacks Rank #4 (Sell).

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

Stocks to Consider

Some stocks worth considering in the same space are First Data Corp. FDC, Mastercard Inc. MA and Virtu Financial Inc. VIRT, each likely to deliver a positive surprise for the fourth quarter based on a favorable Zacks Rank #3 (Hold) and an Earnings ESP of +3.87%, 1.45%, 23.36%, respectively.

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