Profits at Fiserv Inc. slipped in the first quarter as gains in its financial services businesses failed to offset declines in its insurance unit that were linked to unusually high profits in the year-earlier period.
The company said its top line got a $30.3 million boost in the year-earlier period from Fiserv's processing of high-margin flood-related insurance claims. It handled only $600,000 in such claims in this year's first quarter.
"First-quarter performance in the insurance segment was below our expectations," Jeff Yabuki, Fiserv's president and chief executive, said Wednesday during a conference call with analysts. The results "were most affected by the expected falloff in flood claim processing revenues."
The Brookfield, Wis., company's profit fell 2.3% year over year, to $113.4 million, and earnings per shall fell 2 cents, to 64 cents, 3 cents below Wall Street's expectation. Revenue grew 11%, to $1.2 billion.
Revenue in the financial services segment, Fiserv's largest, rose 9.6%, to $767.3 million. Mr. Yabuki said that these gains came mostly from organic growth, especially within the core processing group.
Fiserv highlighted several key wins during the quarter, including 55 new customers for its electronic funds transfer business, which now has 2,700 clients, and 25 new clients for its bill-payment service, which now has more than 500 users.
The company also signed a multiyear deal to handle core processing and cash management for Merrill Lynch Bank and Trust Co. and announced a check image exchange agreement with Bank of America Corp.
Investors were underwhelmed by the results. Fiserv shares were trading at $53.18 Thursday afternoon, down 3.04% from Wednesday's close.
Matthew J. McCormack, an analyst with Friedman, Billings, Ramsey & Co. Inc. said the quarter was in line with his expectations, and he reiterated his "market perform" rating.
However, in a research note published Thursday, Mr. McCormack said that as a result of the drop in flood-claim revenue, Fiserv "posted no organic growth."
"Despite the decent quarter," he wrote, "we have a hard time getting excited owning a company that is not growing, and we remain concerned over the execution risk inherent in its 'Fiserv 2.0' initiative."
Fiserv announced Fiserv 2.0, a plan to simplify its structure and increase cross-sales, in September. Mr. Yabuki said Thursday that the company had made several changes to its sales quotas and that he hoped the changes would add $360 million of incremental revenue by 2012.
"We made tangible progress against our Fiserv 2.0 initiatives," he said.
Fiserv has been built up through a long series of acquisitions, and the Fiserv 2.0 review includes evaluating whether all those operations are still a good fit for the large and complex organization.
Mr. Yabuki confirmed that the company is thinking of selling one unit, which he would not name, and that he expects to announce a decision when Fiserv releases its second-quarter results in July.
If Fiserv does decide to sell the unit, it expects to report a pretax charge of $10 million to $15 million this year. Mr. Yabuki reaffirmed Fiserv's full-year guidance of mid-single-digit revenue growth both for the financial services unit and the company as a whole, and per-share earnings of $2.86 to $2.94.
Fiserv repurchased 2.7 million of its shares during the quarter, at an average price of $52.95. Mr. McCormack said that has helped buoy the price.
