Fiserv Inc. (FISV) reported adjusted income from continuing operations of $159 million (excluding items) or $1.06 per share in the fourth quarter of 2010, up 13% year over year. The reported figure missed the Zacks Consensus Estimate by a penny.
Including one-time items, net income from continuing operations came in at $119 million, down 7% year over year.
For full year 2010, adjusted income from continuing operations came in at $614 million or $4.05 per share, up 11% year over year.
Revenues came in at $1.08 billion in the fourth quarter of 2010, up 1.5% from the year-ago quarter and almost in line with the Zacks Consensus Estimate of $1.086 billion.
Adjusted revenue (excluding output solutions postage reimbursements) came in at $1.03 million, up 2% year over year, primarily due to a 3% growth in the Payments segment and a 2% growth in the Financial segment.
The company operates in two business segments: Financial Institution Services, and Payments and Industry Products.
Financial Institution Services generated $506 million of revenues in the quarter, up 2% from the year-ago quarter. The growth in the quarter was driven by expansion in Account Processing businesses, which was partially offset by weakness in the mortgage businesses and a continuing secular decline in item processing.
Payments and Industry Products generated $530 million of revenues in the quarter, up 3% from the year-ago quarter. Fiserv continued to expand its consumer payment footprint by signing 163 electronic bill payment clients and 55 debit clients in the quarter.
Bill payment transaction volume increased 6% year over year. Debit transaction volume increased 21% year over year.
For full year 2010, adjusted revenues for fiscal 2010 came in at $3.9 billion, up 1.5% from the previous year.
Adjusted operating margin (excluding mergers, severance costs and amortization of acquisition-related intangible assets) came in at 29.7%, up from 28.1% in the year-ago quarter, attributed to strong sales to existing clients, growth in higher margin businesses and a decrease in discretionary compensation cost.
The financial segment’s adjusted operating margin increased 320 basis points year over year to 31.7%, fueled by a favorable mix shift to higher margin revenue, operational effectiveness saves and lower discretionary compensation costs.
The payment segment’s adjusted operating margin decreased 60 basis points year over year to 31.5%, driven by incremental investments in 2010.
Balance Sheet and Cash Flow
As of December 31, 2010, Fiserv had total debt of $3.4 billion, down from $3.7 billion at the end of the previous quarter. The company repurchased $250 million of outstanding 6% senior notes due in November 2012. Fiserv completed a $750 million debt refinancing in the September quarter, which extended the average maturity at a low interest rate of 4%.
During the year, the company generated free cash flow of $735 million, up 10% from the previous year, exceeding the previous guidance range of 5%-8%.
During the quarter, the company repurchased 2.9 million shares for $164 million. At the end of the quarter, Fiserv had about 6 million shares remaining on the existing repurchase authorization.
Guidance
Going forward, the company will focus on creating value for clients and expects to capitalize from investments made in the industry-leading solutions.
For 2011, management projects an adjusted internal revenue growth in the range of 2%- 4%. Fiserv aims at an integrated sale of $155 million and operational effectiveness of $25 million for fiscal 2011.
Adjusted operating margins are expected at 29.9%, up 50 basis points from fiscal 2010. The company expects adjusted earnings per share to be in the range of $4.42 -$4.54, implying a 9%-12%. Free cash flow is projected to increase in the range of 5%-8%, implying a guidance range of $771.8 million-$793.8 million.
The company expects additional important wins in 2011, driven by strong interest of clients in Acumen and the strength of its pipelines. For the Bill payment transaction, the company continues to expect double-digit growth. Fiserv projects strong performance in market-leading account processing businesses.
Fiserv assists financial institutions and health plan administrators in managing their information systems, helping them to efficiently deliver services to their customers. The company competes with Fidelity National Information Services Inc. (FIS), Metavante Technologies Inc., Jack Henry and Associates Inc., and Open Solutions Inc.
We are concerned about slow organic growth and expansion of margins, which drives our “Neutral” recommendation. Shorter-term, Fiserv is a Zacks # 2 Rank (‘buy’).
FIDELITY NAT IN (FIS): Free Stock Analysis Report
FISERV INC (FISV): Free Stock Analysis Report
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