Fiserv Inc.’s chief executive may be considering changing the banking technology and outsourcing provider’s acquisition and integration strategy.
The Brookfield, Wis., company is well known for buying companies, slapping the Fiserv name on the doors, and largely leaving them to fend for themselves.
But Jeffery W. Yabuki, who was named Fiserv’s president and CEO in November, said Tuesday during his company’s first-quarter earnings conference call that it could improve its efficiency by consolidating some functions dispersed throughout its numerous, autonomous units.
“Today we operate in what I would call a dispersed cost and process model. This stance has been taken largely to preserve the entrepreneurial spirit supporting our business model today. I believe we can increase our cost efficiency without negatively impacting this important element of our culture,” he said. “The early indications are that this opportunity could be meaningful.”
Mr. Yabuki has been reviewing Fiserv’s operations since he assumed the top job, and a good portion of his prepared remarks on the call described his goals for that review. For example, he gave clear hints that he would seek ways to reduce nonpersonnel costs, which he put at $1 billion a year.
“I have a working hypothesis that we’re not consistently maximizing financial performance for the overall company,” he said.
He did not rule out the possibility of divestitures, though Fiserv has grown since its founding in the mid-1980s by acquiring other companies.
Fiserv will discuss the results of the review Sept. 19 at a presentation to investors in New York, Mr. Yabuki said.
The company also gave strong hints that it plans to ramp up its health processing. Fiserv announced Tuesday that James W. Cox, the group president of its Fiserv Health, would take the newly created job of executive vice president of mergers and acquisitions on Monday.
Mr. Cox will take on some of the duties of Kenneth R. Jensen, a senior executive vice president and the chief financial officer, who had previously announced plans to retire.
Thomas Hirsch, a senior vice president and the corporate controller, will become the CFO on July 1.
During the call, Mr. Yabuki announced that Fiserv had won a contract to provide processing services to Blue Healthcare Bank, a start-up industrial bank being organized by the Blue Cross Blue Shield Association and 32 of its 38 state and regional Blue Cross health plans to hold consumers’ health savings account deposits.
Though Mr. Yabuki said that acquisitions would be continue to be “fundamental to the Fiserv story,” he also emphasized organic growth through cross-selling.
Many observers say the acquisition of banking technology vendors by Fiserv and several of its rivals in recent years has driven up the price for deals. Mr. Yabuki hinted that the company might use its strong cash flow to strengthen its stock by buying back shares rather than pursuing large acquisitions against aggressively bidding rivals.
“To some extent, I would say the opportunities are mutually exclusive,” he said. “I think it is imprudent for us to sit on the sidelines where we have opportunities … to deploy the capital at rates that are better than what the alternative investments are.”
Patrick Burton, an analyst with Citigroup Global Markets Inc., took Mr. Yabuki’s remarks as a sign that he considers the market for vendor deals to be overheated.
Fiserv likely “will still do some smaller tactical acquisitions,” Mr. Burton wrote in a note to clients Tuesday. “However, we believe the company will use its large cash flow for an enhanced stock buyback as opposed to a large number of large acquisitions.”
Mr. Burton has a “buy” rating on the stock.
John Kraft, an analyst at D.A. Davidson & Co., wrote in a note issued Wednesday that Mr. Yabuki’s strategy could pose risks, especially the prospective cost-cutting drive.
“While his initiatives should resonate with investors, we believe he faces a difficult task, given the entrepreneurial culture of Fiserv,” Mr. Kraft wrote. He has a “neutral” rating on the stock.
Fiserv’s first-quarter earnings fell 16% from a year earlier, to $116.2 million, as revenue grew 13%, to $1.1 billion. The company said there were a lot of contract-termination payments in the first quarter of last year.
Even so, earnings of 64 cents a share topped the average estimate of analysts by 5 cents.
Fiserv reiterated its full-year earnings forecast of $2.46 to $2.53 a share.
