Global Payments Looks Overseas

Global Payments Inc. is trying to offset weak margins on its U.S. business by building strength abroad.

In the near term that leaves the Atlanta merchant processor with solid revenue growth but flat income, according to an analyst.

"North America delivered strong revenue growth in the quarter, with U.S. and Canadian transaction growth rates of 20% and 7% respectively," Paul Garcia, Global Payments' chairman and chief executive, told analysts in a conference call.

Global Payments reported net income of $47.8 million for its fiscal third quarter, which ended Feb. 28, down 1% from a year earlier. Revenue, however, increased by 15%, to $456.4 million.

Canadian margins looked better than those in the U.S., with 12.6% growth in revenue and 3.4.% growth in income year over year for the quarter. But Global Payments has lost market share in Canada recently to Moneris Solutions Corp. and is using independent sales organizations more there to gain market share, said Darren Peller, a Barclays Capital analyst. That reliance on ISOs, in time, could compress margins, he said. In most countries ISOs do not play a major role, so operating abroad could strengthen Global Payments' margins, Peller said. "They're trying to use the European and Asian businesses as growth drivers," he said.

For the current quarter, Global Payments provided estimates for revenue growth in the range of 8% to 13%. Peller said he expects results at the high end of that range or even better. U.S. growth appears likely to remain strong, Canada seems poised for improvement, the U.K. should do especially well because of the increased prices afforded by the revamped platform, and moves in Spain will have been in place longer and should yield more return, he said.

"They're being conservative in their top-line guidance for fourth quarter," Peller said. "I think they're going to grow better than 15%. Margins should get a little better, also."

In the U.K. all of the price increases will pass through to the bottom line, he said. "That's all margin." Meanwhile, 70% of its revenue comes from North America, where margins are under pressure, he said.