Fiserv Inc. blamed unusually large contract terminations a year earlier for the sharp drop in its fourth-quarter earnings.
The Brookfield, Wis., banking technology vendor said Wednesday that net income was $105.9 million, off from the year-earlier period by 29.6%. Revenue rose 11%, to $1.2 billion.
Executives said that termination fees in the comparison quarter added $26.3 million to the bottom line, which threw off the year-on-year comparison figures. Termination fees were $6.9 million in the latest quarter. Earnings per share rose 19%, to 64 cents, matching Wall Street's average estimate.
Jeffery W. Yabuki, Fiserv's president and chief executive officer, said it should do better in the third and fourth quarters, and predicted full-year earnings from continuing operations of $2.86 to $2.94 per share.
"We expect our second-half results to be stronger than the first half of the year related to the acceleration of Fiserv 2.0 initiatives and market improvements," he said during a conference call with analysts.
Mr. Yabuki announced the Fiserv 2.0 strategy in September. It calls for better cross-sales and cost cutting to boost profitability.
He raised the possibility then that Fiserv, which has historically grown by acquisition, could sell or close some underperforming operations, but there has been little to announce on this front.
The company took a pretax charge of $9 million in the fourth quarter to shut down an operation in its lending division. Another unit, which Fiserv did not name, is being evaluated now.
Fiserv reorganized its management structure in December into five major business units. It has also tweaked its segment reporting to align better with its new organization, combining its health-care processing and some financial operations into a new insurance services segment.
In its earnings report, Fiserv announced that it had agreed to provide technology and support for the health savings account services of Exante Bank Inc., a unit of UnitedHealth Group of Minneapolis. Fiserv called Exante the leading provider of HSA accounts in the United States.
John Kuck, a Fiserv sales consultant, said Thursday that Exante's conversion to Fiserv's hosted core accounting system should be complete by the end of the summer.
He said parts of the revenue will be recorded in both the financial and insurance segments. "These relationships are pretty broad. They will require resources from multiple business units."
Fiserv's board authorized the repurchase of an additional 10 million shares of its common stock. The company repurchased 2.9 million shares of its common stock in the fourth quarter and a total of 12.7 million shares in 2006.
Matthew J. McCormack, an analyst at Friedman, Billings, Ramsey & Co. Inc., maintained his "market perform" recommendation on the company's stock Thursday.
"The aggressive buyback program and the increased authorization should protect the downside in the shares," Mr. McCormack said in a note to clients.
But Patrick Burton, an analyst at Citigroup Global Markets Inc., raised his estimates of Fiserv's performance for 2007, citing strength in the health-care business and transaction services such as electronic funds transfers.
"Our confidence in estimates reflects in part the solid internal growth trend in the four quarters of 2006 for the financial institution business, the strong trends in the credit union segment and EFT business, and the benefit from the signing of three large agreements in the pharmacy services businesses," wrote Mr. Burton, who rates Fiserv's stock a "buy."
