Alliance Data Systems Corporation (ADS)
reported adjusted earnings of $2.38 per share for first-quarter
2012, substantially ahead of the Zacks Consensus Estimate of $2.06.
Results increased approximately 17% year over year and outperformed
the guidance of $2.13. Adjusted net income for the quarter was
$146.9 million, improving 30% from $112.6 million reported in
first-quarter 2011.
Including stock compensation expenses of $12.3 million,
amortization of purchased intangibles of $21.1 million, non-cash
interest expense of $16.4 million and an income tax benefit of
$18.1 million, the company reported a net income of $115.2 million
or $1.86 per share in the quarter, compared with $86.4 million or
$1.56 per share in the year-ago period.
Alliance Data posted better-than-expected results based on
strong performances across all segments.
Operational Performance
Revenues in the first quarter were $891.6 million, up 20% from
$740.4 million in first-quarter 2011. The year-over-year upside is
buoyed by a solid performance at Epsilon, augmented by better
performing Private Label Services & Credit segment. Results
surpassed the Zacks Consensus Estimate of $837 million.
Operating expenses spiked 21% year over year to $639 million in
the first quarter of 2011, primarily due to a 29% increase in cost
of operations.
Adjusted earnings before Interest Tax Depreciation and
Amortization (EBITDA) in the quarter under review was $303.6
million, up 18% year over year, owing to solid results in Epsilon
and Private Label Services and Credit.
Operating income increased 19% year over year to $252.6 million
in the quarter.
Segment Update
LoyaltyOne: The segment revenues
totaled $257.8 million, up 18% year over year, primarily
attributable to higher collector redemptions.
Adjusted EBITDA was $58.4 million, up from $58.3 million in the
year ago quarter.
During the reported quarter, operating income edged up to $51.2
million from $51.1 million in the year ago quarter.
AIR MILES reward miles issued increased 11% in the quarter.
Epsilon: Segment revenues were $227.9
million in first quarter, up 46% year over year.
Adjusted EBITDA was $39.8 million in the first quarter, up 18%
year over year.
First quarter operating income was $11.8 million, up from $11.5
million in the year ago period.
Private Label Services and Credit:
Revenues from the segment came in at $407.3 million, up 10% year
over year.
Adjusted EBITDA was $224.4 million in the quarter, up 22% year
over year.
First quarter operating income improved 24% year over year to
$214 million.
Financial Update
Alliance Data ended the quarter with cash and cash equivalent of
$399.0 million up from $300.4 million as of first quarter 2012 end
level.
Debt increased to $2.2 billion at quarter end from $2.0 billion
from the year ago level.
Cash from operations in the first quarter totaled $239.6
billion, higher than $210.4 million in the year-ago period.
Capital expenditures increased to $31.4 million in the quarter
from $18.6 million in the year-ago period.
Share Repurchase
Alliance Data bought back a meager amount of shares under its
$400 million share repurchase program.
Guidance
Second Quarter 2012
Revenue is projected to grow nearly 13%.
The company guided core earnings to grow 15%. Core earnings per
share are expected to be $1.85, up 5% year over year.
Full-Year 2012
Alliance Data expects revenue to grow 9% to gross $3.5
billion.
The company revised the core earnings guidance upwards to $536
million from $511 million, a 22% year over year increase.
Core EPS is reaffirmed at $8.45.
Shares outstanding at 2012 end are projected to be 63.4 million,
up from 60.5 million guided earlier.
Alliance Data also projects free cash flow to be $600 million,
up 20% year over year.
At the Peer
Discover Financial Services (DFS), which
competes with Alliance Data, reported first-quarter earnings per
share of $1.18, substantially ahead of the Zacks Consensus Estimate
of 92 cents as well as 84 cents recorded in the year-ago quarter.
Net income spiked 35.7% year over year to $631 million from $465
million. Net income allocated to common shareholders also surged
ahead to $624 million from $459 million in the year-ago
quarter.
The surge in profits was elevated by sales volume growth,
complemented by higher interest income, reduced provision for loan
losses and lower delinquency rates on account of improved credit
quality. Results were also boosted by the escalated income from
both direct banking and payment services business, which also drove
the book value per share.
Our Take
Alliance Data remains well poised for the upcoming quarters
based on continued strong performance across the segments, solid
financial position and its focus on boosting shareholder value via
share buybacks. However, an increasing debt level makes us
cautious.
The company’s adequate liquidity will help it to continue share
repurchase as well as focus on strategic acquisitions. Alliance
Data also has inked long-term deals, which will help it generate
additional revenues going forward. The company also forayed deeper
into Brazil with its Dotz program gaining momentum.
The quantitative Zacks #2 Rank (short-term Buy rating) for
Alliance Data indicates slight boost on the stock over the near
term.
ALLIANCE DATA (ADS): Free Stock Analysis Report
DISCOVER FIN SV (DFS): Free Stock Analysis Report
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