Fidelity National Information Services Inc. FIS reported first-quarter 2015 results. Adjusted earnings from continuing operations came in at 65 cents per share, in line with the Zacks Consensus Estimate but lower than 68 cents earned a year ago.
Revenues
Revenues of $1.6 million came in line the Zacks Consensus Estimate but grew 5% year over year. The year-over-year increase was primarily driven by strong performance by the International Solutions segment.
Integrated Financial Solutions revenues jumped 2.5% year over year to $969 million driven by growth across all regions.
Revenues from Global Financial Solutions increased 8.3% year over year to $587 million driven by strong growth in consulting, professional and digital delivery solutions.
Corporate and Other revenues remained almost flat on a year-over-year basis.
Margins
Operating income grew 24.8% year over year to $269.4 million.
Balance Sheet & Cash Flow
Fidelity’s balance sheet remained highly leveraged at the end of the reported quarter.As of Mar 31, 2014, cash and cash equivalents were $489 million and debt outstanding totaled $5.2 billion.
Net cash provided by operations was $231 million and adjusted cash flow from operations was $315 million. Capital expenditures were $101 million resulting in free cash flow of $214 million in the first quarter of 2015.
Fidelity repurchased 2.2 million common shares for $150 million in the first quarter 2015. As of Mar 31, 2015, approximately $1.4 billion remained under the existing share repurchase authorization. In addition, the company paid shareholder dividends of $73 million.
Outlook
For 2015, Fidelity expects organic revenues to grow in the range of 1% to 3%. The company expects 2014 earnings in the range of $3.27 to $3.37, an increase of 6–9% over 2014.
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% dividend hike 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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