The slumping global economy prompted Global Payments Inc. to take an impairment charge for its money transfer business, driving the Atlanta processor into the red in its fiscal third quarter, which ended Feb. 28.
Global Payments reported last week that its revenue rose 26% from a year earlier, to $392.7 million. It posted a net loss of $106.8 million, versus a profit of $40.1 million a year earlier, largely as a result of the $148 million noncash goodwill impairment in its transfer operations.
"The charge reflects the declining outlook for our money transfer business, related to macroeconomic conditions affecting the construction industry in particular," David Mangum, the processor's chief financial officer, said in a conference call with analysts.
Each January, Global Payments performs a goodwill test, assessing the outlook for its various business lines over the next several years, he said.
The critical issue for the transfer business is the slowdown in the construction industry, which employs a lot of its users, Mangum said. "It's tough to see it turning the other direction right now, despite some pretty good management. It is the construction industry; it is the macroenvironment."
These trends were not a factor in last year's test, he said.
Global Payments' other business lines fared better.
The company is bullish on international growth prospects, despite "unfavorable foreign currency trends and continuing macroeconomic headwinds," said Paul R. Garcia, its chairman and chief executive. "We saw solid performance from our international merchant segment this quarter," including $50 million of revenue from its U.K. joint venture with HSBC Holdings PLC.
Garcia also discussed security, which has become a more important issue for processors after two breaches in recent months. Royal Bank of Scotland Group PLC's RBS WorldPay announced in December that its systems had been compromised, and Heartland Payment Systems Inc. followed suit in January.
The disclosures "had a significant impact on all of us" by forcing companies to re-examine how they protect payment data, Garcia said.
Global Payments is vigilant about this task, he said. "We pay outside resources to professional hackers to try to attack us constantly, and pay them real money to do so. We have thousands of attempts on us every day."
Thomas C. McCrohan, an analyst at Janney Montgomery Scott LLC, wrote in a research note published Friday that Global Payments' performance met his expectations, and he predicted that investors would view the positives, such as its growth within the United States, as outweighing the negatives, such as the charge to the transfer business.
McCrohan raised his rating for Global Payments' stock to "buy" in January, even though it had lowered its revenue and profit guidance. On Friday, McCrohan reiterated his "buy" rating for the stock. "The current valuation is attractive," he wrote.
Though he lowered his full-year earnings projection by 10 cents, to $2.50 a share, because of currency trends, McCrohan stressed that Global Payments' long-term prospects were strong. Its "management is focused on international expansion, and reported progress" in the Asia-Pacific region is "a tremendous opportunity."
Robert Dodd, an analyst at Regions Financial Corp.'s Morgan Keegan & Co., wrote in a research note published Friday that Global Payments' revenue growth was "significantly higher than our estimate" of $366 million and the average estimate of $377 million.
Dodd was less optimistic about Global Payments' prospects in the Asia-Pacific region, citing the company's "heavy exposure to the hospitality sector," which he wrote is already showing in its earnings reports.
"While the money transfer outlook appears to be somewhat grim, we do believe that volumes have hit somewhat of a bottom," Dodd wrote. If there is little improvement this quarter, it will be because it is a tough comparison to 2008, when the company had "better than expected Mother's Day volumes."
By midday Friday, Global Payments' stock price had dropped 4.41% from Thursday's close, to $32.33 a share.