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Alliance Data (ADS) Beats on Q1 Earnings Beat, Guides Same

Alliance Data Systems Corporation ADS reported adjusted earnings per share (EPS) of $3.63 in the first quarter of 2016, surpassing the Zacks Consensus Estimate of $3.47. The better-than-expected earnings came on the back of solid organic growth.

Operational Performance

Alliance Data generated revenues of $1.7 billion, in line with the Zacks Consensus Estimate and up 5% year over year.

Operating expenses increased nearly 4% year over year to $1.3 billion primarily due to a rise in cost of operations and higher provision for loan losses.

Adjusted earnings before interest tax depreciation and amortization (EBITDA) were $493 million, up 4% year over year. The upside was prompted by an improvement in Loyalty and Card Services.

The magnitude of increase in total revenue was higher than the magnitude of increase in expenses, leading to a 6% year-over-year increase in operating income to $344.3 million.

Segment Update

LoyaltyOne: Revenues totaled $355 million, down 9% year over year. Adjusted EBITDA was $79 million, up 2% from the year-ago quarter. AIR MILES’ reward miles issued increased 5% and reward miles redeemed increased 6%.

Epsilon: Revenues were $493 million in the quarter, down 2% year over year. Adjusted EBITDA was $81 million, down 22% year over year.

Card Services: Revenues came in at $836 million, up 17% year over year. Adjusted EBITDA was $308 million, up 9% year over year.

Financial Update

Alliance Data exited the quarter with cash and cash equivalents of $970 million, down 17% from 2015 end.

At quarter end, debt increased 10% from 2014 end to $5.5 billion.

Capital expenditure at Alliance Data increased 40% year over year to $59.4 million.


Alliance Data continues to expect 2016 core EPS of $16.75 (up 11% year over year) on revenues of $7.1 billion (up 10% year over year).

For the second quarter, the company expects to deliver core EPS of $3.58 on revenue of $1.62 billion. Both the top and the bottom lines represent 8% year-over-year growth.

Our Take

Alliance Data continues to outperform earnings expectations as well as its own guidance with year-over-year improvement.

The company is well poised for the upcoming quarters based on continued strength across its segments and a solid financial position. The inorganic story also remains impressive as its acquisitions are contributing largely to its financial performance. Alliance Data has been banking heavily on the Conversant acquisition, which has started to reap results.

Alliance Data expects top- and bottom-line growth to gain pace as the year advances with lower yield compression at Card Services, lower loss rates and better performance at Epsilon.

Zacks Rank and Stocks to Consider

Alliance Data currently carries a Zacks Rank #3 (Hold). Some better-ranked financial service providers are Green Dot Corporation GDOT, Equifax Inc. EFX and Total System Services, Inc. TSS. While Green Dot sports a Zacks Rank #1 (Strong Buy), Equifax and Total System hold a Zacks Rank #2 (Buy).

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EQUIFAX INC (EFX): Free Stock Analysis Report
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