Fiserv (FISV) Q4 2006 earnings summary

Executive summary

• FY06 revenue rose 12% to $4.544B; internal revenue growth was 9%. Operating income was nearly flat at $744.3M, while net income fell to $449.9M from $516.4M.

• Q4 revenue was $1.198B, operating income $181.4M, income from continuing operations $105.9M and diluted EPS $0.61.

Financial highlights

• Processing and services revenue increased 5% to $3.027B; product revenue rose 30% to $1.518B, driven largely by pharmacy and workers’ compensation growth.

• FY06 net income was $449.9M and diluted EPS $2.53, versus $516.4M and $2.70 in FY05; FY05 included $86.8M of pretax investment-sale gains.

• Operating income was $744.3M versus $745.4M; operating margin declined to 16% from 18%, including an estimated 3 percentage-point drag from gross prescription-cost accounting.

• Adjusted for the stated headwinds, FY06 operating results faced lower contract termination fees, $24.5M of incremental share-based compensation, Australian check-processing losses and $9.0M of lending write-down and shutdown costs.

Outlook and guidance

• The expected FY07 effective tax rate for continuing operations is 38.5%, versus 37.6% in FY06.

• Operating cash flow and other available funding sources are expected to cover 2007 operating needs, lease payments, debt repayments and planned capital spending.

• Strategic priorities include deeper client integration, selective acquisitions, innovation, operating efficiencies and more disciplined capital allocation for long-term growth and profitability.