merchant software firm First Data (FDC 19.0, -2.60, -12.04%) makes
nearly five-month lows in reaction to a rough third quarter report and cut to
its full year 2018 earnings outlook.
Since there’s not a proverbial good place to begin it may be prudent to outline FDC’s full year guidance cut, as it may have more bearings on the long-term outlook for the business. Simply put, FDC now expects FY18 earnings per share (EPS) in the range of $1.38-1.40, down from the previous $1.42-1.47. Management offered the caveat that the revision to the EPS guidance mostly reflects the negative impacts associated with certain significant and recent foreign currency movements, and a modest dilutive impact from recently closed divestitures. This guidance includes an estimated year-over-year adverse impact from foreign currency movements on reported segment EBITDA of about $60 mln in the second half of 2018 (which was about flat in the first half of 2018.)
Management left other full year guidance unchanged – organic constant currency segment revenue growth still 5-6%, organic constant currency segment EBITDA growth is still expected between 6.5-8.5%, and free cash flow guidance still stands at $1.4+ bln.
Additionally, management now sees reported constant currency segment revenue growth of 6.3-7.3%, down from the 7-8% outlook previously, strictly to reflect the impact of divestitures completed in Q3. FDC also expects actual dollars of reported revenue in Q4 to be adversely impacted versus a year ago by $50 mln from the two divestitures completed in Q3 and an additional estimated $60 mln from the recent deterioration in certain foreign exchange rates primarily in Latin America.
Looking at how Q3 shook out then, it’s no surprise that management lowered guidance. For the quarter, FDC reported both worse than expected EPS of $0.35 and revenues of $2.16 bln, up 4.4%. Total segment EBITDA was up 4% on a reported basis to $815 mln, or up 7% on an organic basis.
By segment FDC’s largest – Global Business Solutions (GBS) – fared the best in Q3. The business saw revenue growth of 10% on a reported basis to $1.38 bln in part helped by a strong period out of North America where revenue growth of 11% to $1.08 bln was a result of strong growth in the ISV and agent businesses within the Partner Solutions channel, combined with good growth in the Direct channel. The segment’s JV channel saw a modest revenue decline, roughly in line with its performance in the first half of the year.
Global Financial Solutions (GFS) saw Q3 revenues fall 2% on a reported basis to $407 mln as weakness in North America – down 2% on a reported basis to $233 mln – and EMEA – down 6% to $114 mln – offset gains in the U.K., Germany, and the APAC region.
Lastly, the Network & Security Solutions (NSS) group performed the worst as revenues fell 7% on a reported basis in the quarter to $367 mln as the NSS' primary businesses, EFT revenue grew mid-single digits in the quarter while Stored Value revenue declined high-single digits, but was up double digits excluding the impact of the previously disclosed non-renewal of a low-margin plastics contract, and the company expects a similar yr/yr impact in Q4 but lesser impact starting in 2019.
This morning FDC fell through a pretty important technical level – the 200-day simple moving average (20.22) – on its way to 12.3% losses to open the week. Even with today’s losses, though, the stock still boasts YTD gains of 15.0% as a strong spring and summer, fueled by earnings beats and guidance raises, seems to have given shares a bit of a cushion.
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