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Why Is Total System (TSS) Down 8% Since Last Earnings Report?

Zoom Video Communications (ZM) closed the most recent trading day at $93.38, moving -1.9% from the previous trading session.

It has been about a month since the last earnings report for Total System Services (TSS). Shares have lost about 8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Total System due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Total System's Q3 Earnings Beat Estimates, Improve Y/Y

Total System Services, Inc.’s third-quarter 2018 earnings per share of $1.16 surpassed the Zacks Consensus Estimate by 6.4% and surged nearly 32% year over year. Exceptional performances by all three segments have contributed to this favorable result.

Total revenues were $1.01 billion, down 18.6% year over year, primarily due to the adoption of Accounting Standards Codification (ASC) 606. However, it beat the Zacks Consensus Estimate by 7.1%.

The company reported adjusted EBITDA of $348.5 million, up 12.6% from the year-ago quarter.

Issuer Solutions

In the third quarter, net revenues for this segment rose 8.3% year over year to $434 million, driven by a 12% increase in total transaction year over year.

Operating income of $154 million was up 4.3% year over year. Operating margin of 35.5% contracted 130 basis points (bps) from the year-earlier period.

Merchant Solutions

Net revenues rose 22.9% to $346.3 million. It was mainly backed by increased point-of-sale transactions, Cayan's strong performance and solid organic growth in its pre-Cayan business. Dollar sales volume for the segment expanded 30% year over year to $40.9 billion.

Operating income improved 21.2% to $125.1 million while operating margin declined 50 basis points to 36.1% from the prior-year period.

Consumer Solutions

Net revenues for this segment amounted to $195 million, up 8.8%. This upside is attributable to 11.2% growth in GDV (gross domestic value) and a solid contribution across all four distribution channels.

Operating income inched up 1.9% to $49.5 million while operating margin decreased 170 basis points to 25.3%.

Financial Position

Total assets jumped 18% from the level as of Dec 31, 2017 to $7.5 billion as of Sep 30, 2018.

Total shareholders’ equity climbed to $2.6 billion on Sep 30, 2018 from $2.2 billion at the end of Dec 2017.

Free cash flow for the first nine months of 2018 totaled $612.4 million, up 11.3% from the same time frame in 2017.

2018 Guidance

Driven by strong third-quarter results and favorable expectations for the remaining year, the company has raised its 2018 view. It estimates total revenues on a GAAP basis in the range of $3.9-$4 billion, down 19-18%. On a non-GAAP basis, net revenues are anticipated in the band of $3.7-$3.8 billion, reflecting 11-13% year-over-year growth.

GAAP EPS will likely be in the $3.09-$3.15 band, down 2-0% from the year-earlier quarter. Adjusted EPS is forecast between $4.41 and $4.47, up from the earlier projection of $4.3-$4.4. This in turn, reflects an increase of about 31-33%.


How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month.

VGM Scores

Currently, Total System has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.


Total System has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

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