To hear Robert E. Showalter tell it, his honeymoon at National Processing Inc. is over.
"Time to come out of my shell and face the real world," said Mr. Showalter, three months into his job as president and chief executive officer of the Louisville, Ky.-based transaction processor.
Mr. Showalter, 60, has attempted to lead the National City Corp. subsidiary, which is No. 2 in credit card merchant processing and a specialist in national retail accounts, out of the woods and back to the place of prominence he thinks it deserves.
National Processing-88% owned by its Cleveland-based parent-has been pummeled by the loss of a big account, the sudden departures of top executives, and finally, poor earnings.
But Mr. Showalter rises to the challenge like a general rallying his troops: "We're going to defend and we're going to protect," he said. "We're going to aggressively pursue our current customer base and look for new revenue sources."
Signs of trouble surfaced last October when National Processing lost the majority of its business with Wal-Mart Stores. The $100 billion retailing company in Bentonville, Ark., represented 4% of the processor's revenue.
Especially painful was the fact that Wal-Mart transferred its transactions toFirst Data Corp., the biggest merchant processor and National Processing's archrival.
In March came the unexpected resignations of two key National Processing executives: Kurt S. Knipp, executive vice president for merchant card services; and Richard A. Alston, executive vice president for finance and corporate development. The company would not confirm pervasive rumors that they had been fired.
A few days later, March 12, National Processing plucked Mr. Showalter from one of National City's banking subsidiaries to succeed Tony G. Holcombe as chief executive officer. Trading of the company's shares on the New York Stock Exchange was suspended for more than an hour. The stock price slid 26% by the close of the day, to $7.75.
The price has since rebounded to about $11.
In April, National Processing announced that first-quarter earnings had dropped 94% from the same period a year earlier.
"At this point, Wall Street is saying the company has had significant disappointments," said Richard Weingarten, a director at Salomon Brothers Inc.
To "earn back credibility" in the coming months, Mr. Weingarten said, National Processing must prove its stability, hit earnings targets, and keep prices under control. Wall Street, he added, is "certainly looking for acquisitions going forward."
Mr. Weingarten said the loss of Wal-Mart affected National Processing more than it let on.
"The size of Wal-Mart was significant in terms of overall volume," he said. "It's also not great public relations to lose a premier retailer who is your biggest client."
So it has fallen to Mr. Showalter to manage the turnaround.
He worked at the Federal Reserve for 24 years and at other National City subsidiaries 10 years. He does not seem daunted.
"How many quarters does it take to regain the faith?" Mr. Showalter said. "They are saying, 'Show me,' and that's what we plan to do as the management group of National Processing."
Mr. Showalter likes to joke that he was "acquired by National City" in 1988.
At the time, he was president and chief executive officer of Commerce National Bank of Lexington, Ky., what he calls a "small family bank" where he had planned to spend the remainder of his career.
However, when the bank was bought by National City, Mr. Showalter moved around among its subsidiaries until he landed at National Processing in Louisville.
So far, his strategy includes focusing on small and medium-size merchants. He also wants to form alliances with independent sales organizations, both to acquire merchants through them and to take on more volume by processing for them.
Over two to five years, he said, the ideal portfolio mix would be about two-thirds large merchants, one-third small and medium-size merchants.
Mr. Showalter said one of his "major thrusts" is "to look at every expense dollar that moves in the company."
"If I have one weak link, I have to deal with it," he said.
Mr. Showalter's colleagues have confidence that he will be able to pull it all off.
"When you get into the dynamics of (Mr. Showalter's) leadership, he has excellent cost-cutting skills as well as marketing skills," said Robert G. Siefers, chairman of National Processing Inc. and executive vice president and chief financial officer of National City Corp.
National Processing has been reaching out to form new partnerships and alliances for the last six months, a trend Mr. Siefers said is likely to continue with Mr. Showalter.
"This business is famous for alliances, people who do different parts of the process getting together," Mr. Siefers said. "That's what we would anticipate going forward."
In February, National Processing signed a multiyear contract with Vital Processing Services, the Tempe, Ariz.-based joint venture of Visa U.S.A. and Total System Services Inc., for transaction clearing and settlement.
National Processing signed processing contracts last year with two leading independent sales organizations: PMT Services Inc. and Financial Alliance Processing Services Inc.
Through these alliances this year, the company has added 56,000 merchant processing contracts through independent sales organizations, and 9,400 new merchants of its own.
To cut costs, Mr. Showalter oversaw the combination of two previously separate divisions-merchant card services and merchant check services-into one called merchant services.
As part of the initiative, he had to lay off 100 people, primarily in management and sales.
"As we went through consolidation of check and card, where we were calling on the same merchant, we really didn't need a dual sales force." Mr. Showalter said. "So it is just an attempt on our part to rationalize our organization as we pull at least two major units together."
He points to a contract renewal with Target as proof he is succeeding.
In May, the company announced it had signed a five-year contract with the division of Minneapolis-based Dayton Hudson Corp. and added 63 stores, including Dayton Hudson and Marshall Field stores.
But Mr. Weingarten said National Processing is feeling pressure to adjust its prices, as one-third of its contracts with large retailers are up for renewal this year.
National Processing Inc. was founded in 1979 as National Processing Co., then a subsidiary of First Kentucky National Corp., which National City acquired in the 1980s.
The company quickly developed a specialty serving large retailers like Kmart and Target. It also started processing airline ticket transactions for all major airlines.
Today, National Processing connects with 47,000 travel agents and moves a $1 billion a week.
The 7,000-employee company went public last August at $16.50 a share and soon traded as high as $21, briefly matching the price escalations of other merchant processors after their initial public offerings.
"The good news is that the merchants in which they have a very strong franchise tend to be very rapidly growing merchants from the bank card volume perspective," said Marc Abbey, principal at First Annapolis Consulting of Linthicum, Md.
The bad news, he said, is National Processing "may need to focus on new markets, and that may be tough for any company to do."
Paul Martaus, president of Martaus & Associates of Clearwater, Fla., said National Processing is so completely "tailored to large merchant volume" that it "is swimming upstream" in its attempts to capture smaller merchants.
Part of the problem is technology, he said: The company's mainframe- based computer infrastructure is aging.
National Processing is "a prime candidate for a sale or takeover," Mr. Martaus added.
Asked about the prospect that his company might be sold, Mr. Showalter gave an adamant "no."
"There are rumors about everybody," he said. "But I can just sit and tell you what (National City Corp. chairman) David Daberko has been telling us, that he really is not interested in selling National Processing."
As proof of National City's intentions to hold on, he points to the holding company's recent commitment to buy back two million National Processing shares.
"This shows their faith in us," Mr. Showalter said.
