Large retailers' efforts to attract more business are hurting transaction fee revenue at Global Payments Inc.
The Atlanta processor said last week that some of its biggest clients in Canada are slashing prices, a move that is boosting transaction volume at big retailers, but driving down volume at Global's smaller clients, which generally pay higher rates.
"Our Canadian business continues to be affected by overall macroeconomic conditions, driving large national merchants to heavily discount merchandise and thus take a larger proportional share of transactions away from the small and midsize merchants that provide higher revenue," Paul Garcia, Global's chairman and chief executive, said in a conference call Thursday, according to a transcript.
David Mangum, Global's chief financial officer, cautioned that this trend, which was somewhat offset by exchange rates, may be specific to Global's client base. "The overall transaction growth frankly for Canada is about flat for the quarter on a year-over-year basis," he said during the call.
In the U.S., average transaction amounts were down 9%, from the prior year, but flat from the prior quarter, Garcia said. "This is actually encouraging, but it's too early to determine whether this portends for a positive trend."
For Global's fiscal second quarter, which ended Nov. 30, its revenue grew 12%, to $409 million, from a year earlier. Its net income grew 28%, to $62.8 million.
These figures exclude Global's money transfer business, which it is selling; it announced in November that the private-equity firm Palladium Equity Partners LLC would pay $85 million to $100 million for the unit, depending on its performance. Global said in November that the transfer business provides 6% to 7% of its revenue. It expects to finalize that sale by April.
Garcia also announced that Global's board has extended his employment agreement, committing him to a minimum of three and a half more years with the company. This "reflects the board's appreciation for our performance," he said.
For Global's 2010 fiscal year, it expects revenue to grow 8% to 10%, to $1.58 billion to $1.615 billion. Its earnings per share are projected to grow 12% to 17%, to $2.35 to $2.46 a share.
Thomas McCrohan, an analyst with Janney Montgomery Scott LLC's Janney Capital Markets, wrote in a research note that Global's executives are "being conservative in their 2010 guidance due to an uncertain economic environment and potential changing consumer behavior within the United States and Canada."
McCrohan concluded that the company's earnings forecasts are based on "some harsh assumptions and [would] likely be very beatable."
In November, McCrohan praised Global's decision to sell its money transfer business, which he said he viewed as tangential to Global's main transaction processing business.