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WEX Beats Earnings Estimates in Q2, Ups '19 Revenue View

Zacks Equity Research

WEX Inc. WEX reported better-than-expected second-quarter 2019 results.

Adjusted earnings of $2.28 per share outpaced the consensus estimate by 2 cents and increased year over year. The reported figure exceeded the midpoint of the company’s guided range of $2.22-$2.28 per share.

Total revenues of $441.8 million beat the consensus mark by $2 million and improved year over year, driven by double digit growth in all segments. Revenues exceeded the midpoint of the guided range of $438-$443 million.

Shares of the company have gained a massive 43.1% year to date, outperforming the 38.5% rally of the industry it belongs to.

Let’s check out the numbers in detail.

Revenues by Segment

Fleet Solutions revenues (60% of total revenues) increased 11% year over year to $267.3 million due to higher volume growth and increased late fees, partially offset by lower fuel prices.

Average number of vehicles serviced was around 13.9 million, up 18% from the year-ago quarter. Total fuel transactions processed increased 10% from the year-ago quarter to 153.7 million. Payment processing transactions rose 10% to 128 million. U.S. retail fuel price declined 4% to $2.91 per gallon.

Travel and Corporate Solutions revenues (21%) of $91.4 million were up 21% year over year, driven by strong performance in Corporate Payments business, international markets and contributions from the Noventis acquisition. Purchase volume increased 13% year over year to $10 billion.

Health and Employee Benefit Solutions revenues (19%) of $83.1 million increased 55% year over year, driven by strong performance of the company’s U.S. healthcare business (revenues grew 72% year over year). Acquisition of Discovery Benefits added $25 million in revenue. The average number of Software-as-a-Service (SaaS) accounts in the United States grew 17% year over year to 12.6 million.

Operating Results

Operating income decreased 6% from the prior-year quarter to $94.7 million. Operating income margin declined to 21.4% from 27.1% in the prior-year quarter.

Balance Sheet

WEX exited the second quarter with cash and cash equivalents of $768.4 million compared with $387.3 million at the end of the prior quarter. Long-term debt was $2.8 billion, roughly flat with the prior quarter figure.

Q3 Guidance

WEX expects revenues in the range of $455-$465 million, the midpoint ($460 million) of which is lower than the current Zacks Consensus Estimate of $461.1 million.

Adjusted earnings are expected in the range of $2.52-$2.62 per share, the midpoint ($2.57) of which is lower than the Zacks Consensus Estimate of $2.60.

The company’s third-quarter guidance is based on an assumed average U.S. retail fuel price of $2.72 per gallon and fleet credit loss ranging between 13-18 basis points.

2019 Guidance

WEX updated its full-year 2019 guidance. The company now expects revenues in the range of $1.720 billion to $1.750 billion, compared with the previous guidance of $1.705-$1.745 billion. The midpoint ($1.735 billion) of the revised guided range is below the current Zacks Consensus Estimate of $1.740 billion.

Adjusted earnings are expected in the range of $9.10 to $9.35 per share, compared with the previous expectation of $9.10-$9.50 per share. The midpoint ($9.23) of the revised guided range is below the Zacks Consensus Estimate of $9.25.

The company’s full-year guidance is based on an assumed average U.S. retail fuel price of $2.72 per gallon and fleet credit loss ranging between 13-18 basis points. The company also assumes around 43.8 million shares outstanding for the third quarter and full year.

Zacks Rank & Stocks to Consider

Currently, WEX carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Some better-ranked stocks in the broader Zacks Business Services sector include Accenture ACN, ExlService EXLS and Charles River Associates CRAI, each carrying a Zacks Rank #2 (Buy).

The long-term expected EPS (three to five years) growth rate for Accenture, ExlService and Charles River Associates is 10.3%, 10.6% and 13%, respectively.

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