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Alliance Data (ADS) Beats on Q3 Earnings, Raises Guidance

Zacks Equity Research
Updated

Alliance Data Systems Corporation ADS reported adjusted earnings per share (EPS) of $4.54 in the third quarter of 2016 that surpassed the Zacks Consensus Estimate of $4.17. The better-than-expected earnings were driven by solid segmental growth. Earnings also improved 22% year over year.

Operational Performance

Alliance Data generated revenues of $1.9 billion in the third quarter. The top line not only beat the Zacks Consensus Estimate of $1.8 billion but also improved 19% year over year.

Operating expenses increased nearly 15.4% year over year to $1.5 billion primarily due to a rise in cost of operations and higher provision for loan losses.

Adjusted earnings before interest tax depreciation and amortization (EBITDA) were $512 million, up 13% year over year. The upside was driven by an improvement in Loyalty and Card Services.

The magnitude of increase in total revenue was higher than the magnitude of increase in expenses. This supported a 46% year-over-year increase in operating income to $421 million.

Segment Update

LoyaltyOne: Revenues totaled $384 million, up 28% year over year. Adjusted EBITDA was $82 million, up 14% from the year-ago quarter. AIR MILES’ reward miles issued increased 6% and reward miles redeemed surged 74%.

Epsilon: Revenues were $543 million in the quarter, up 2% year over year. Adjusted EBITDA was $135 million, flat year over year.

Card Services: Revenues came in at $966 million, up 26% year over year. Adjusted EBITDA was $331 million, up 14% year over year.

Financial Update

Alliance Data exited the quarter with cash and cash equivalents of $1.5 billion, up 25% from year-end 2015.

At the quarter end, debt increased 16% from year-end 2015 to $5.8 billion.

Capital expenditure at Alliance Data rose 13% year over year to $158.3 million in the first nine months of 2016.

Capital Deployment

Alliance Data initiated dividend. The board of directors declared quarterly dividend of 52 cents to shareholders on record as of Nov 3. The dividend will be paid on Dec 1, 2016.

Guidance

Alliance Data raised its 2016 core EPS guidance to $16.90 (up 12% year over year) from $16.85 guided earlier. The revenue expectation was raised to $7.20 billion (up 11% year over year) from $7.15 billion.

The company projects 2017 revenues and earnings growth of 10%.

Our Take

Alliance Data continues to outperform earnings expectations as well as its own guidance. It also has a solid track record of year-over-year earnings improvement. The company delivered record results in the third quarter. We also appreciate that the company has initiated dividend.

Alliance Data is well poised for the upcoming quarters based on continued strength across its segments and a solid financial position. Alliance Data’s inorganic growth story also remains impressive with its acquisitions contributing largely to its financial performance.

ALLIANCE DATA Price, Consensus and EPS Surprise

 

ALLIANCE DATA Price, Consensus and EPS Surprise | ALLIANCE DATA Quote

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Zacks Rank and Other Stocks

Alliance Data carries Zacks Rank #3 (Hold). Some better-ranked financial transaction service providers are MasterCard Inc. MA, Visa Inc. V and FleetCor Technologies, Inc. FLT. Each of these carry Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.

MasterCard, a provider an array of services for credit, debit, mobile, web-based and contactless payments, and other related electronic payment programs is set to release third-quarter results on Oct 28. The Zacks Consensus Estimate for the same is pegged at 98 cents.

Visa, a provider of a range of branded card payment product platforms which customers use to develop and offer credit, charge, deferred debit, debit and prepaid payments as well as access cash (ATM), is set to report fiscal fourth-quarter 2016 results on Oct 24. The Zacks Consensus Estimate for the same is pegged at 73 cents.

FleetCor, a provider of fuel cards, commercial payment and data solutions, stored value solutions, and workforce payment products and services, is set to release third-quarter results on Nov 1. The Zacks Consensus Estimate for the same is pegged at $1.74.

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