Fidelity National InformationFIS

FIS reported second-quarter earnings of $1.48 per share, just ahead of what analysts expected. The company is successfully shifting its focus back to core banking software after selling its merchant payments business. While it slightly lowered its full-year growth target for its base business to about 5 percent, it significantly raised its forecast for free cash flow, which is the actual cash a company has left over after paying for its operations and equipment.

Management now expects to generate as much as 2.25 billion dollars in cash this year, a nearly 40 percent increase over last year. This is the most important number for the company right now. It provides the funds needed to pay down debt and eventually restart buying back shares, which can help increase the stock's value over time even if revenue growth remains modest.

See the full quarter, and how our tracked metrics did

Source: 8-K filing

Key highlights

• Profitability outlook raised: Management raised its full year expectations for profit, now projecting adjusted earnings per share between $6.15 and $6.24. This increase follows a strong second quarter where cash generation grew by $100 million more than the company previously planned.
• Margins expanding sharply: Profit margins reached 41.7%, an increase of nearly 2 percentage points from the 39.8% reported a year ago. The improvement was driven by cost savings and the addition of the high margin Total Issuing Solutions business, which is the company's new division for processing bank card transactions.
• Growth target lowered: The company reduced its pro forma revenue growth outlook for the year to a range of 4.5% to 5.0%, down from the previous target of 5.1% to 5.7%. Pro forma results combine the performance of new acquisitions as if the company had owned them for the entire period to give a better comparison of underlying growth.
• Banking solutions leading: Revenue in the banking segment grew 44% to $2.5 billion, making it the largest contributor to the company. Even when removing the impact of new acquisitions, this division saw 6.1% growth as banks increased spending on modernization and artificial intelligence tools.
• Debt reduction prioritized: The company has paused buying back its own shares to focus on paying down its $21.2 billion in total debt. Executives stated they will not resume meaningful share repurchases until the ratio of debt to earnings falls to roughly 2.8 times.

Our take: This was a solid quarter defined by excellent cost control and better cash flow, though the lowered growth outlook for the year is a notable blemish. The company is successfully integrating its recent large acquisition, which is boosting profit margins. This strengthens the case that the business is becoming more efficient even as it navigates slower market growth.