What happened
Shares of Fidelity National Information Services (FIS -1.24%) are plummeting today, down 14.6% as 11:55 a.m. ET, despite the payment processing company beating on both sales and earnings estimates this morning.
Heading into its fourth-quarter report, analysts had forecast Fidelity National Information would earn $1.70 per share on sales of just under $3.7 billion. As it turned out, the company earned $1.71 per share (adjusted for one-time items) and generated sales just over $3.7 billion.
So a win on both counts. But if that's the case, why is Fidelity National stock down so much today?
So what
Let's start with the numbers. Q4 sales grew a bare 1% for Fidelity National, a slowdown from its full-year growth rate of 5%. The bigger surprise, though, was earnings. In stark contrast to the $1.71-per-share "adjusted" profit noted above, Fidelity National's actual earnings as calculated according to generally accepted accounting principles (GAAP) were a startling negative $29.28 per share, wiping out all the year's earlier profit, and pushing the company into a $27.68-per-share loss for the year.
Fidelity blamed a "non-cash goodwill impairment charge" of $17.6 billion taken on its ill-fated 2019 acquisition of Worldpay for the loss, and announced it will exit this "Merchant Solutions" business to avoid taking further losses.
The spinoff probably won't happen for another 12 months, however. In the meantime, The company warned investors to expect a continued drag on results. First-quarter 2023 sales of about $3.4 billion are likely to fall well short of analyst projections for nearly $3.6 billion, while Q1 earnings -- now expected to range from only $1.17 to $1.23 per share (adjusted) -- will badly miss the Street's prediction for a $1.42 per share profit.
Indeed, the spinoff appears likely to tank results for all of 2023. Fidelity National's full-year prediction is for sales as low as $14.2 billion (analysts had estimated more than $15 billion), and earnings of no more than $6 a share (again, the consensus here was $6.57 per share).
Now what
Long story short, Fidelity National may have "beat" earnings in Q4 2022, but 2023 is going to look a lot worse for investors -- at least until the spinoff takes place.
In that regard, Fidelity National told investors that it's planning to implement a tax-free spinoff of what used to be called Worldpay and reinstall former Worldpay CEO Charles Drucker after it's spun off within the next 12 months. Fidelity National, meanwhile, will return to its focus on being a "leading provider of financial technology solutions for financial institutions, capital markets firms, clients and corporates globally."
Despite management's assurances that this will be good for both of the companies once they're separate again, investors today seem more focused on the near-term disruption and weaker sales and earnings -- and of course, the big loss the payment processor just incurred.
I can't say I blame them.
