FIS says it's shielded from weakness in consumer spending

Colin Ziemer

The recent stock sell-off prompted fears of consumer distress and lower payment volume, but Fidelity National Information Systems reports any impact to the payments side of its business should be minimal. 

Investors and analysts have been monitoring payments-related earnings calls for signs of weakness due to inflation or a potential economic downturn. Payment companies have mostly reported consumer spending has held up. FIS was the first company to report after Monday's stock sell-off, and analysts questioned the company about headwinds if the sell-off were to trigger a recession. Second-quarter earnings beat analysts' expectations, and FIS raised its outlook for the full year.

For the three months ended June 30, earnings per share were $1.36, up 78% from the year-ago quarter and above analysts' estimate of $1.23 a share, according to Zacks Investment Research. Earnings before interest, taxes, depreciation and amortization were $1 billion, above analysts' expectations of $982 million.  

"We're not that exposed to consumer spending trends across FIS," Chief Executive and President Stephanie Ferris said during Tuesday's earnings call.

FIS' primary business is selling bank technology, though the company has a payments operation that offers Visa and Mastercard products to its financial services clients. FIS also cross-sells digital payments technology that it develops internally and in partnership with Worldpay, a payments company FIS owned from 2019 to 2023 and then sold for $18.4 billion. 

FIS earns revenue from processing transactions, but that isn't material to the company's overall revenue, Ferris said, adding most of its payment-related revenue comes from embedding payments technology in FIS' core banking systems. That revenue isn't reliant on trends in consumer spending, she said.  FIS has spent much of the past two years updating its strategy following the Worldpay sale. Since the sale, FIS has focused more on its traditional business of selling core banking technology. 

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In an earlier interview with American Banker, Ferris said that as a combined FIS/Worldpay company, it lost its focus on banking clients. Ferris was named CEO in 2022, and she instituted a restructuring that included laying off about 2,600 employees. The company's stock has risen about 60% since.  

There is a breadth of products that FIS can offer financial institutions across the life cycle of money movement, including banking, payments and other industries such as capital markets and insurance, according to a research note from Jeffries. "That can enable further cross-sell potential for payments into core products, and attractive end-markets for its capital markets business," Jeffries said. 

The pivot in focus is paying off, Ferris said, noting client signings for core banking technology services in the first half were about equal to the entire year 2023. Worldpay has focused more on building payments technology as a separate company.

"Regarding payments, we are starting to get our mojo back there, we got a little distracted during the separation of Worldpay," Ferris said, adding FIS is refocusing on the combination of bank technology with digital payments and incentive marketing products for banks. "We are seeing early wins in sales there, and these [payment products] are highly integrated with the core [banking technology]." 

For the full year, FIS expects revenue of $10.12 billion to $10.17 billion, up from its previous guidance of $10.1 billion to $10.15 billion.

The company forecast earnings at $5.03 to $5.11 a share, compared with its previous estimate of $4.88 to $4.98 a share. It was the second time FIS raised its EPS outlook.

FIS tweaked the lower end of its EBITDA forecast from $4.115 billion to $4.14 billion, from $4.1 billion to $4.14 billion previously. FIS' stock was trading at about $76 on Tuesday, up about 5%.  

"Management continues to develop a track record of strong execution, and we believe the risk and reward remain attractive," said an investor note from William Blair.