First Data Corp.'s third-quarter earnings fell 8% from a year earlier, but gains in the Denver payment processor's merchant services and payment services businesses offset a steep drop in its card-issuing services unit.
Net income fell to $421.5 million, or 54 cents a share, First Data said Friday. Revenue rose 6%, to $2.7 billion.
The company said much of the earnings drop, which was expected, resulted from the ongoing integration of Concord EFS, the writeoff of a European mobile payments business that never took off, and the loss of some issuing customers.
Revenue from the issuing business fell 4%, to $594 million, and its operating profits fell 25%, to $116 million. First Data has lost some major customers in the past two years, including JPMorgan Chase & Co., Bank of America Corp., Bank One Corp., and FleetBoston Financial Corp.
Merchant processing revenue rose 8%, to $1.1 billion, and operating profits from the business rose 7%, to $266 million. Transaction volume grew 13%.
The merchant business had two important wins in recent months, though neither of them affected the third-quarter results.
This month First Data and JPMorgan Chase said they would consolidate the two merchant acquiring ventures that they co-owned, Chase Merchant Services and Paymentech LP, into a single company called Chase Paymentech Solutions LLC, which would be the industry's largest merchant acquirer.
In August, First Data also announced that it would buy Citigroup Inc.'s acquiring business and operate it jointly with Citi. That deal closed Oct. 1.
During a conference call with analysts Friday, Scott Betts, First Data's president of enterprise payments, said his company expects to renew its merchant alliance with PNC Financial Services Group Inc. for five years, though the agreement has not yet been completed.
Western Union Financial Services Inc., the world's largest money transfer network, was once again a major growth driver for First Data. Money transfer revenue increased 14%, driven by the 22% growth in consumer-to-consumer transactions.
Revenue from First Data's payment services business 12%, to $1.1 billion, and income from the business rose 8%, to $361 million. Western Union is the main component of the business.
Even in the well-worn United States-to-Mexico corridor, Western Union exceeded expectations; transaction volume grew 26%, and revenue grew 29%. Charles T. Fote, First Data's chairman and chief executive, attributed this increase to "grassroots marketing" in Mexico.
Hurricane Katrina drove third-quarter earnings down a half-cent a share, but the full effects could eventually reach 1 to 3 cents, because of chargebacks and other costs, Mr. Fote said.
Western Union's volume went down and there were fewer merchant transactions to process in the regions affected by Katrina because some businesses "literally floated away," he said.
The ongoing integration of Concord, which operates the Star Systems PIN debit network, cost an additional 3.5 cents a share.
The company also wrote off 3.5 cents a share to shutter Encorus Payments Ltd. in August. Its sole customer, Simpay Ltd., a consortium of European mobile phone companies, was disbanded in June.
"The transaction growth of Western Union and merchant were ahead of what I was looking for," said Robert J. Dodd, an analyst for Regions Financial Corp.'s Morgan Keegan & Co. Inc.
