Efforts to expand abroad appear to be paying off for Total System Services Inc., as are indications the economy is improving.
Executives at the Columbus, Ga., processor expressed optimism during a conference call with analysts Wednesday to discuss second-quarter earnings, a refreshing reprieve from some of its recent quarterly earnings calls in which TSYS executives were relatively gloomy in their forecasts, one analyst said.
"Domestic indications are starting to show a rebound. But combine that with international [growth], and they're looking pretty good, and that's the source of their increased optimism," said Robert Dodd, an analyst at Morgan Keegan & Co.
Wall Street also noted the company's increased optimism. TSYS' shares were trading at about $15.20 Thursday afternoon, up 7.34% from Wednesday's closing price.
During the quarter, TSYS began servicing two large retail brands in Canada, President's Choice and Wal-Mart Canada, in previously undisclosed deals that its chief executive, Philip Tomlinson, announced during the call.
In addition, TSYS on Tuesday announced a contract with Tesco Personal Finance PLC. The banking unit of the U.K. grocery chain Tesco PLC currently processes with TSYS through Royal Bank of Scotland but will now do so independently with the processor, he said. Tesco has a portfolio of 2.4 million card accounts in the U.K.
TSYS also expects to complete its card processing conversion with the retailer Carrefour in Brazil, part of the France-based retailer Carrefour Group. "We believe we'll have the conversion completed very quickly," Tomlinson said. "This success will give us the opportunity to add additional clients in the Brazilian market as we go forward, which is one of the world's top five markets for cards."
Such a strategy, which TSYS calls "clustering," is proving to be successful in other markets where the processor has quickly added customers after showing success with one in a new market, Tomlinson said. "As the latest example, we've now signed our fifth client in Germany over about the last year and a half," he said.
Tomlinson also noted the significance of its joint venture with First National Bank of Omaha, called First National Merchant Solutions. That transaction closed April 1.
"I'm sure we'll look back at this transaction in a few years and think of it as a watershed event, as it gets us closer to the merchant and, ultimately, the end user," Tomlinson said. "The great thing now is we're able to refer merchant leads and will ultimately create efficiencies and synergies between" TSYS Acquiring Solutions and First National Merchant Solutions, he said.
Talks are also continuing regarding TSYS' relationship with Bank of America Merchant Services to extend its relationship with that organization, Tomlinson said. However, no definitive agreement has yet been reached, he said. B of A last year announced it was shifting that merchant services business to First Data Corp.
Dodd believes TSYS still likely will lose that relationship, though it will last longer than originally planned.
TSYS reported net income of $52.5 million for the second quarter, down 2.8% from $54 million a year earlier. Revenue was up 5.3%, to $433.8 million from $412 million.
In North America, revenue totaled $236.8 million, down 10.6% from $265 million. Transaction volume in the region totaled 1.56 billion, up 2.6% from 1.52 billion. Accounts on file in the region were down 6.7%, to 290.7 million from 311.7 million.
The international segment generated revenue of $78 million, up 2.1% from $76.4 million. Transaction volume in the region was up 9.9%, to 297.9 million from 271.1 million. Accounts on file were up 11.4%, to 42.1 million from 37.8 million.
The merchant segment generated revenue of $126.8 million, up 57.9% from $80.3 million. Transactions processed rose 8.3%, to 1.42 billion from 1.31 billion.