WEX Surpasses Earnings Estimates in Q4, Misses Revenues

WEX Inc. WEX reported mixed fourth-quarter 2019 results, with earnings beating the Zacks Consensus Estimate but revenues missing the same.

Adjusted earnings of $2.61 per share beat the Zacks Consensus estimate by 2% and increased 24% year over year. The reported figure exceeded the midpoint ($2.56) of the company’s guidance of $2.51-$2.61.

Total revenues of $440 million missed the consensus mark by 3.6%. Nevertheless, the figure improved year over year on the back of growth in all segments. Revenues fell short of the midpoint of the guidance of $452-$462 million.

Notably WEX shares have gained 32.3% over the past year, compared with 43.7% growth of the industry it belongs to.

Revenues by Segment

Fleet Solutions revenues (59% of total revenues) increased 2.7% year over year to $260.8 million. The upside was driven by robust transaction volume growth and higher late fee and incremental revenues from EG fuel, partially offset by lower fuel prices, unfavorable FX headwinds and a softer market environment.

Average number of vehicles serviced was around 14.9 million, up 19% from the year-ago quarter’s figure. Total fuel transactions processed increased 12% from the year-ago quarter’s tally to 156 million. Payment processing transactions rose 9% to 126.7 million. U.S. retail fuel price declined 4.8% to $2.80 per gallon.

Travel and Corporate Solutions revenues (22%) of $95.7 million were up 22.7% year over year. The uptick can be attributed to a 17% year-over-year increase in purchase volume. The company witnessed strength in accounts payable products and contributions from the Noventis acquisition.

Health and Employee Benefit Solutions revenues (19%) of $83.5 million increased 69.1% year over year, driven by growth in U.S. healthcare business, with 18% organic growth and better-than-expected contributions from Discovery Benefits. The average number of Software-as-a-Service (SaaS) accounts in the United States rose 17% year over year to 13.4 million.

WEX Inc. Price, Consensus and EPS Surprise

WEX Inc. price-consensus-eps-surprise-chart | WEX Inc. Quote

Operating Results

Adjusted operating income increased 24.6% from the prior-year quarter’s figure to $184.9 million. Adjusted operating income margin increased to 42% from 38.9% in the prior-year quarter.

Balance Sheet

WEX exited the quarter with cash and cash equivalents of $810.9 million compared with $531.4 million at the end of the prior quarter. Long-term debt was $2.7 billion, flat year over year.

Q1 Guidance

WEX expects revenues in the range of $445-$455 million, the midpoint ($450 million) of which is lower than the current Zacks Consensus Estimate of $451.1 million.

Adjusted earnings are expected in the range of $2.15-$2.25 per share, the midpoint ($2.2) of which is marginally less than the Zacks Consensus Estimate of $2.21.

The company’s first-quarter guidance is based on an assumed average U.S. retail fuel price of $2.69 per gallon and fleet credit loss between 15 basis points (bps) and 20 bps.

2020 Outlook

The company expects revenues in the range of $1.86-$1.9 billion. The current Zacks Consensus Estimate is pegged at $1.88 billion.

Adjusted earnings are expected in the range of $10.15-$10.55 per share. The midpoint ($10.35) is below the Zacks Consensus Estimate of $10.43.

The company’s full-year guidance is based on an assumed average U.S. retail fuel price of $2.7 per gallon and fleet credit loss ranging between 13 bps and 18 bps. The company also assumes around 44 million shares outstanding for the full year.

Zacks Rank & Stocks to Consider

Currently, WEX carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the broader Zacks Business Services sector are S&P Global SPGI,  NV5 Global, Inc. NVEE and Accenture PLC ACN. S&P Global  sports a Zacks Rank #1 (Strong Buy), whereas NV5 Global and Accenture carry a Zacks Rank #2 (Buy).You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings (three to five years) growth rate for S&P Global, NV5 Global  and Accenture is estimated at 10%, 20%  and 10.33%, respectively.

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