For much of this year Wall Street has shown an edginess about the outlook for Concord EFS Inc. for reasons ranging from banks' efforts to push signature-based debit over PIN, to concerns over contract renewals with banks, to fears about how a slow economy might erode its earnings power.
Just how edgy they were became much more apparent on Tuesday, when a mere hint that Concord's revenue momentum was at risk, coupled with what some analysts said was an earnings miss - one that amounted to less than a cent per share - clipped more than 12% off the automated teller machine network owner's stock price.
What Concord thought were fairly standard disclaimers - that its operating margins have tightened, and that weak consumer confidence might translate to lackluster holiday sales - seem to have sounded like alarm bells in some quarters. However, analysts say they are also concerned that Concord may lose contracts with banks, especially since MasterCard and Visa have said they are actively seeking PIN debit deals.
At one point Tuesday, Concord's stock had dropped by 20% from Monday's close, even though it announced that its third-quarter earnings had jumped 16%, to $94.3 million, on revenues that rose 30%, to $568.2 million.
"There's a perception by a few analysts that this company is down and out, but as the incoming CEO, I believe the best days as a company is in front of us," said Edward A. Labry 3d, Concord's president, who is slated to succeed Dan M. Palmer as the chief executive officer next year.
In a third-quarter conference call Tuesday morning, Mr. Labry said that "I didn't mean to scare anyone in our press release" by referring to the soft economy, which the company blamed for its weak transaction volume last month. That volume has risen this month, he said.
"The big transaction story continues to be PIN-secured debit, which outpaced every other transaction category by growing in excess of 35% in the third quarter," Mr. Labry said in a press statement. "In fact, year-to-date acquired debit transactions have already exceeded full-year 2001 acquired debit volume."
Concord operates Star Systems, the country's largest electronic funds transfer network.
Ramkrishna P. Kasargod, an analyst at Regions Financial Corp.'s Morgan Keegan & Co., attributed Concord's stock drop to "a confluence of events that lined up to increase investor concern." Those included new poll data documenting low consumer confidence, predictions for weak Christmas sales, and Mr. Labry's statement about low volume last month.
"There was some speculation in the marketplace that the company was signaling they weren't going to meet earnings expectations and the growth outlook for the fourth quarter and for next year," Mr. Kasargod said.
There has also been "a lot of concern that some of the members of the Star network, when they are to renegotiate contracts, might not renew," he said. "That fear is out there."
Concord has used Morgan Keegan for investment banking within the last year, Mr. Kasargod said, though he says he does not own any stock in it.
Karl Keirstead, an analyst at Lehman Brothers, said that Concord's problem was not weakening consumer spending, but that its earnings per share of 16.5 cents - excluding a favorable one-time adjustment for litigation settlement - missed Wall Street's expectations by a half-cent.
"Normally, a half a penny wouldn't be a big deal, but the company set a guidance only six to seven weeks ago, took their numbers down, and in less than two months the company seems to have trouble delivering their numbers again," Mr. Keirstead said.
He also noted that the company's operating margins have tightened over the past year. "There is a huge margin deterioration." Concord's operating margin dropped 4.7 percentage points from the same period last year, to 20.4.
"We didn't get much clarity from the company in the call" on that subject, Mr. Keirstead said. "The company blamed a number of factors," including its interchange hike in April and higher expenses.
Also, Concord is starting to go after national merchants like Wal-Mart Stores Inc., which pay narrower profit margins to their processors, he said. "The pricing competitiveness is really severe."
Mr. Labry tried to quiet the buzz about contract negotiations.
"Our 6,200 banks are not in jeopardy," he said. "These relationships are way beyond PIN-based debit." Concord offers other products and services to banks, and that gives the company many advantages in contract negotiations, he said.
