Shares of Total System Services Inc. fell sharply Thursday after the Columbus, Ga., card processor reduced its outlook for the rest of the year and an analyst downgraded the stock.
Philip W. Tomlinson, TSYS' chairman and chief executive officer, said the storm in the credit markets is taking a toll both on his company's clients and on TSYS itself.
"At the midpoint of 2008, we have seen many of our clients' financial results suffering as a result of the slowing economies around the world and the worst turmoil we have ever seen in the financial markets," Mr. Tomlinson said in announcing second-quarter earnings on Wednesday. "This has obviously had a negative impact on their performance and expectations, and we are no exception."
For example, Mr. Tomlinson said on a conference call with analysts that clients such as Washington Mutual Inc., Wachovia Corp., and CompuCredit Corp. have all been hit hard by the credit crunch.
TSYS cut its guidance for the rest of the year, saying it now expects earnings to grow in the 5% to 7% range, rather than the 7% to 9% previously forecast. That would translate to earnings of $1.27 to $1.29 per share. Excluding the one-time costs for its December spinoff by Synovus Financial Corp., earnings are expected to be $1.32 to $1.34 per share.
TSYS now expects revenue to grow 6% to 8% this year, instead of 7% to 9%.
At midafternoon, the company's stock was trading at $20.07, down 9.27% from Wednesday's close, before the earnings report.
Even the analyst who issued the downgrade called the market's response an overreaction.
"It's still a good company with good prospects," said Lawrence S. Berlin, an analyst at First Analysis Securities Corp. in Chicago, who downgraded the stock Thursday to "equal-weight" from "overweight."
"I just don't see any catalyst for the company to outperform the market in the near term," he said in an interview.
In the second quarter, net income fell 4%, to $63.1 million, compared to the year earlier. Revenue rose 5%, to $483.1 million.
Excluding spinoff costs, earnings of 33 cents a share met the average of Wall Street analysts' estimates.
Executives said comparisons to last year should improve in the second half. The quarterly comparison included processing revenues from JPMorgan Chase & Co., which took its card processing in-house in July 2007.
Mr. Tomlinson said on the earnings call that global services were a bright spot, with operating income up 57.7% from the first quarter as the company benefited from a first-quarter investment to start up processing for managed service clients in the United Kingdom such as Nationwide, Capital One Financial Corp., and Rabobank. Global services also benefited from currency conversions, due to the dollar's weakness.
In a comparison to the transportation industry, calling TSYS a "toll bridge," he said, "Our toll bridge is really in good shape, but it seems that we've got a couple of pot holes out there that we've got to get fixed, and we think it's just going to take a little time."
