Fiserv Takes $6.45B Charge as Margins Shrink: Rapid Earnings Reaction
Key Points
Adjusted earnings per share dropped to $1.75 from $2.04 while organic revenue stayed flat.
The Merchant Solutions segment, home to Clover, drove most of the decline in operating profit.
Management held its full-year outlook, which now depends on a stronger fourth quarter.
Fiserv (NASDAQ: FISV) booked a $6.45 billion non-cash goodwill write-down, which turned third-quarter GAAP earnings into a loss of $11.17 per share. Shares rose about 10% in pre-market trading. Behind the charge, organic revenue was flat and adjusted earnings fell to $1.75 from $2.04, so profit is shrinking faster than revenue. The affirmed full-year guidance now needs a clear revenue turn in the fourth quarter.
Key Numbers
- Organic revenue: flat from a year ago.
- Merchant Solutions operating margin: 28.7%, versus 37.2%.
- Adjusted operating margin: 31.2%, versus 37%.
- Adjusted EPS: $1.75, versus $2.04.
What It Means
Costs are rising while sales stall. Adjusted operating income fell 17% while revenue barely moved, and most of that loss sits in Merchant Solutions, the card-acceptance and Clover business.
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Adjusted earnings leave out a lot. Fiserv has excluded nearly $500 million of One Fiserv transformation costs this year, covering technology modernization, consulting, and retention pay. Multi-year costs that recur each quarter are part of what the business really earns.
Guidance is the real test. Organic revenue is down 3% for the nine months, so the affirmed full-year range takes a clear fourth-quarter turn.
What to Watch Next
Watch whether fourth-quarter organic revenue turns clearly positive, as management expects. Also track whether the raised $1 billion Project Elevate savings target shows up in margins.
Randy Coon has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.