Shares of Fidelity National Information Services Inc. cratered more than 26% Thursday, on track to have their worst day in more than two decades after the merchant-acquiring company delivered a downbeat outlook for its latest quarter.
The financial-technology company cited “deteriorating macroeconomic conditions” as it showed just 1% growth in adjusted earnings per share and missed expectations on the metric by a penny.
“We are not pleased with the profitability performance of the business and are taking actions to address them,” FIS FIS, -28.05% Chief Executive Gary Norcross said on the earnings call. He noted that earnings were impacted by “inflationary cost pressures such as wage inflation and downstream supplier increases as well as incremental macro headwinds such as consumer weakness in the U.K.”
The stock was on track for its lowest close since Feb. 29, 2016, when it finished at $58.25, according to Dow Jones Market Data. FIS shares were also on pace to log their worst single-day percentage decline since Sept. 20, 2002, when they fell 32.8%. That drop was FIS’s steepest on record.
For the fourth quarter, FIS executives anticipate $3.656 billion to $3.706 billion in revenue along with adjusted earnings per share of $1.66 to $1.72. The FactSet consensus was for $3.809 billion in revenue and $2.08 a share in adjusted earnings.
“Given the changing macro environment, the persistence of inflationary cost pressures and the resulting impacts to margin and free cash flow, we are taking immediate action to permanently reduce the cost structure of the company via our enterprise transformation program,” President Stephanie Ferris said on the company’s earnings call. She’s assuming the CEO post at the start of 2023.
Deputy Chief Financial Officer Erik Hoag, who takes over the CFO post tomorrow, added that executives have seen “incremental macro factors impacting various portions of our revenue streams.” He called out “recessionary trends within the U.K. and broader Europe” that weigh on merchant volumes.
Baird analyst David Koning wrote following the report that the fourth-quarter outlook “is likely the reset the incoming CEO/CFO want to make to re-establish a beat/raise pattern.”
But Barclays analyst Ramsey El-Assal called the company’s commentary “very disappointing.” He noted that the stock’s Thursday plunge seemed a response to the downbeat outlook as well as FIS’s “glum commentary regarding deteriorating macroeconomic conditions and the need to make structural changes to the merchant business.”
El-Assal highlighted that FIS’s merchant business “significantly unperformed” that of peers in the latest quarter.
Raymond James analyst John Davis was blunt as well in a note titled: “Holy Kitchen Sink.”
Davis wrote of FIS’s “disastrous 3Q print that we can only hope was the kitchen sink and then some,” while noting that the company’s cost-reduction plan remains “vague” as far as details on operating expenses versus capital expenditures.
Nonetheless, he kept his strong buy rating on the shares.
“All in, we refuse to jump out what feels like the basement window with the stock now trading at just under 8x our 2023 EPS estimate (-7%) as the 4Q guide should prove overly conservative, and we expect FY23 estimates to likely finally bottom,” he wrote. “That said, patience will no doubt be required.”