The banking technology and outsourcing provider Fiserv Inc. reported strong second-quarter earnings and raised its full-year guidance, while providing some clues about a major strategic shift expected in the near future.
The Brookfield, Wis., company said revenue was $1.1 billion, besting the year-earlier period by 10%, and said net income rose 3%, to $117.7 million, or 66 cents a share. A one-time tax benefit improved earnings by 2 cents a share.
Jeffery W. Yabuki, who was named chief executive in November, said Tuesday that he expects full-year operating earnings of $2.48 to $2.54 a share. The earlier guidance was $2.46 to $2.53.
Shortly after being named CEO, Mr. Yabuki announced plans for a companywide strategic review. In an earnings conference call in April, he said that initial findings of the review indicated Fiserv could cut costs through consolidation, and that he expected to present the final report at a Sept. 19 investors meeting in New York.
The comments about consolidation sparked questions about which units might be merged. Fiserv is noted for its frequent acquisitions and for doing little to integrate the companies it buys into its overall corporate structure.
In an earnings conference call Tuesday, Mr. Yabuki addressed speculation that Fiserv might consolidate its client-facing products.
“We are not pursuing a consolidation of our client-facing platforms, and would not, unless we determined that it was truly in the best interest of our clients,” he said. “Today, retaining the value of our multiple core-system client bases outweighs the potential cost savings” of consolidating technology.
Instead, he said, Fiserv’s biggest opportunity is in back-end areas such as purchasing, supply-chain management, internal technology infrastructure, and process improvement.
John Kraft, an analyst with the investment firm D.A. Davidson & Co. in Great Falls, Mont., said the earnings numbers demonstrate that Fiserv is in good shape.
“Everyone’s waiting with bated breath” for the September presentation, he said. Though Fiserv “has given some hints” about what it plans to do, there are still many unanswered questions, he said.
“One of the themes is that they will integrate some of the functionality and products and business lines to become more efficient,” Mr. Kraft said. “It makes sense. The question, though, becomes in the near term how expensive will it be, what sort of opportunity will there be in the long term, and which specific areas?”
Mr. Yabuki’s saying he would leave customer-facing products alone was likely meant to quell fears that the proposed changes would be disruptive to his customers, Mr. Kraft said. “Competitors like to use that as a tool to spook customers into signing with them,” he said.
Chris Penny, an analyst at Friedman, Billings, Ramsey Group Inc., wrote in a research note published Wednesday that though Fiserv is reserving some comments for its investor day, he thinks it is sharing enough information to compel investors to buy its stock today.
“The catalyst that everyone seems to be waiting for is its long-term strategy session with the investment community in September,” Mr. Penny wrote. “Our thought: why wait? Fiserv has very strong cash flow, great visibility, room for upside, and a historical record of solid returns on capital.”
Gregory Smith, an analyst with Merrill Lynch & Co., wrote in a research note published Wednesday that he was raising his full-year estimate by 2 cents, to $2.52 a share, because of the 2-cent tax benefit Fiserv reported for the second quarter. His estimate was unaffected by Fiserv’s raised guidance, which at just a penny extra on the high end of its range was “essentially maintained,” he wrote.
