Fiserv Inc.'s first-quarter earnings topped Wall Street's expectations, driven by one-time events as well as strong internal growth.
But executives said they expect second-quarter results to decline, and they raised the full-year outlook only modestly. Unusual events, including hurricanes and the purchases of client banks, inflated first-quarter profits, the financial technology outsourcing provider said Friday.
Leslie M. Muma, the president and chief executive of the Brookfield, Wis., company, boasted during a conference call with analysts of "strong operating earnings and margins across our businesses."
First-quarter net income soared nearly 50%, to $139 million, or 71 cents per share. Revenue grew 7%, to $973.1 million.
Operating results from continuing operations came to 58 cents per share, up from 49 cents a year earlier and the 52 cents that analysts were expecting.
The one-time items included the $345 million sale of Fiserv's securities clearing businesses to Fidelity Global Brokerage Group Inc. and the sale of a block of stock in its rival Bisys Group Inc.
Operating results included $14.9 million in termination fees, mostly from six client banks that nonclients bought, but "these fees are highly unpredictable," said chief financial officer Kenneth R. Jensen, a senior executive vice president, during the conference call.
The business lost was relatively small, he said, and "we're replacing that in part with our customers' acquiring the customers of other competitors."
Mr. Muma said the normal attrition rate is 1% to 1.5%. When customers leave at the end of a contract, which is more typical, termination fees are negligible, he said - but fees due when a bank is acquired early in a contract cycle can be significant.
Fiserv also took in unusually high fees from processing flood insurance claims triggered by last summer's many hurricanes, Mr. Muma said. "That will tail off as we go into the second quarter."
The company projected second-quarter earnings of 53 to 55 cents per share and full-year earnings of $2.19 to $2.23, excluding the gain from the securities unit's sale.
The Securities and Exchange Commission, as expected, levied a $15 million penalty against the securities unit on Thursday for failing to monitor employees involved in market timing and late trading. Fiserv had already set aside a reserve to cover that expense.
And executives said that two Australian banks have begun using its check-processing and image-archiving services under a previously announced 12-year agreement. Processing for a third is expected to begin in the second half.
The three are Commonwealth Bank of Australia, National Australia Bank, and Westpac Banking Corp. Fiserv did not say which is not yet using the service.
The Australian project will reduce earnings this year by 1 to 2 cents per share but begin raising them next year. The agreement is expected to generate $460 million of revenue over the 12 years.
Fiserv also reported that it had repurchased 2.8 million shares of its common stock in the first quarter for $106.7 million under a buyback plan authorized last November. That leaves 5.5 million shares for repurchase under the plan.
David A. Trossman, an analyst at Wachovia Securities Inc., restated his "outperform" rating on Fiserv stock. Its main business is well positioned "with or without a recovery in organic revenue growth," he said, and he predicted that its management "will be creative and disciplined in using its cash."
But Andrew Jeffrey, an analyst at Needham & Co., reiterated an "underperform" rating, calling Fiserv "a proxy for macro trends" in the financial outsourcing market.
The continuing decline in check volume and the long lead time for switching to digital check images "are the primary culprits" slowing the organic growth of Fiserv's revenue, he wrote in a note to clients.
