Fidelity National Information Services Inc.(FIS) reported fourth-quarter and full year fiscal 2014 results. Fourth quarter adjusted earnings from continuing operations of 87 cents per share were up 16% from the year-ago quarter. Earnings per share (EPS) came in line with the Zacks Consensus Estimate.
For full year 2014, the company reported adjusted earnings from continuing operations of $3.10 per share, an increase of 9.9% on a year over year basis.
Revenues
Revenues increased 7.4% year over year (5% organic growth) to $1,689.1 million, lagging the Zacks Consensus Estimate of $1,704 million. The year-over-year increase was primarily driven by strong performance from the International Solutions segment.
For full year 2014, the company reported revenue growth of 5.8% year over year to $6,413.8 million.
International Solutions revenues rose about 13% year over year (11% organic growth) to $397.7 million backed by strength in implementation and consulting services.
Revenues from Financial Solutions increased 7% year over year to $645.4 million (4% organic growth), driven by strong growth in consulting, professional services, risk and compliance solutions.
Payment Solutions revenues grew 5% on a year-over-year basis (3% organic) to $647.2 million, driven by growth in network solutions along with an increase in card production and payment processing volumes.
Margins
Operating income increased to $351.1 million from $220.7 million in the year-ago quarter. Gross margin increased 110 basis points (bps) to 33.9%. Adjusted EBITDA stood at $525.6 million, up from $484.0 million in the year-ago period. EBITDA margin increased 30 bps on a year-over-year basis to 31.1%.
Balance Sheet & Cash Flow
Fidelity’s balance sheet remained highly leveraged at the end of the reported quarter. As of Dec 31, 2014, cash and cash equivalents totaled $492.8 million, while debt outstanding totaled $5.1 billion.
Fidelity generated $1.2 billion in cash from operations in fiscal 2014 versus approximately $1.1 billion in the prior year. Free cash flow for fiscal 2014 rose to $864.3 million from $826.2 million in fiscal 2013.
The company repurchased 8.7 million shares for $476 million in fiscal 2014 and paid approximately $275 million in dividends.
Outlook
For fiscal 2015, Fidelity expects revenues to grow in the range of 5% to 7%. The company expects adjusted earnings per share in the range of $3.37 to $3.49, reflecting growth of 9% to 13% from 2014 levels.
Free cash flow is expected to be nearly the same as adjusted net earnings for the year.
Our Take
Fidelity’s commanding position in the financial services market, increasing international exposure, recurring revenue model, diversified product portfolio, cost synergies from acquisitions and a loyal customer base are significant positives.
Fidelity has been forming strategic partnerships with firms like Fifth Third Bank and American Blue Ribbon Holdings, which are expected to drive growth going forward. Also, the company’s initiatives to share profits with its investors like the recent 8% increase in dividend are a positive.
Moreover, we believe that Fidelity is well positioned to benefit from increasing investment in mobile banking and innovative products such as PayNet. Mobile banking is developing into an essential extension of online banking as smartphone and tablet usage continue to accelerate globally.
However, increasing consolidation in the banking sector, challenging environment for the Payments Solutions business and uncertain regulatory environment are the primary headwinds, in our view. Also, intensifying competition from the likes of Fiserv (FISV), Global Payments Inc. (GPN) and Alliance Data Systems Corp. (ADS) remains a concern.
Currently, Fidelity has a Zacks Rank #3 (Hold).
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