First Data Corp.’s third-quarter earnings fell 34%, to $342.2 million, or 17 cents per share, in part because of one-time charges including last month’s spinoff of Western Union Co.
The Denver company said revenue rose 9%, to $1.8 billion, compared with last year’s third quarter.
Revenue and earnings per share of 29 cents were in line with Wall Street’s expectations.
Henry C. Duques, First Data’s chairman and chief executive, said during a conference call Tuesday, “With the Western Union spin behind us, we are now 100% focused on the needs of financial institution and merchant clients around the world.” The company announced its results Monday after the markets closed.
In addition to the 2-cent charge for the Western Union restructuring and spinoff, First Data took a 12-cent noncash loss to write down financial derivatives that did not qualify for hedge accounting. It said its year-to-date gain is 2 cents in that area.
Western Union had been First Data’s biggest revenue generator in recent years. Now its top revenue producer is its merchant-processing unit, Commercial Services. The unit came in slightly above the company’s expectations by recording revenue of $1.1 billion, up 10% from a year earlier, or 7% excluding reimbursable debit network fees.
Mr. Duques attributed some of the segment’s success to technology that accelerates merchant activation.
“To ensure that newly signed merchants become revenue generating as quickly as possible, it is critical to minimize the time it takes to activate merchants onto our system,” he said. Nearly 22% of all new merchants signed in the quarter were up and running within two days, he said. That is up from less than 5% a year ago.
First Data’s Financial Institution Services segment, which provides processing services to credit card issuers, continued to struggle. Its operating profit fell 2%, to $96 million, and revenue fell 4%, to $455 million.
Those results, though, were in line with First Data’s expectations for the segment. The year-earlier quarter included a termination fee from JPMorgan Chase & Co., which moved its credit card portfolio to Total System Services Inc. last year. In this year’s third quarter the company bought Peace Software Inc., which develops outsourcing software for billing and customer care for utilities.
First Data International, the company’s smallest segment, grew the fastest of the three segments. Its revenue rose 45%, to $332 million, and 13% of that growth was organic.
First Data is projecting fourth-quarter earnings per share of 33 to 35 cents, with consolidated revenue growth in double digits.
The company also announced a plan to buy back $700 million of its shares by the end of 2007.
Matthew J. McCormack, an analyst at Friedman, Billings, Ramsey & Co., wrote in a Tuesday note that First Data’s results were “good” but that he did not “expect the stock to react significantly either way.”
Tien-Tsin Huang, an analyst with analyst at JPMorgan Securities Inc., said in a late Monday note that First Data’s announcement to buy back $700 million was less than its existing $1.2 billion repurchase authorization. “This suggests to us that FDC will continue to allocate some of its free cash flow to future acquisitions,” especially with the Single European Payments Area “on the horizon.”
