Improved revenue growth in the Asia-Pacific region, Canada and the United States provided a welcome fiscal second-quarter boost for Global Payments Inc. But the merchant processor was unable to turn the rise in year-over-year revenue into a concurrent boost in net income, as one-time charges related to a reduction in employees in Canada affected company earnings.
Global Payments reported a $53.5 million profit for the quarter ended Nov. 30, down 14.8% from $62.8 million during the same period last year. Revenue increased by 8.4%, to $443.5 million from $409 million.
“Revenue came in better than expected,” Darrin Peller, an analyst at Barclays Capital in New York, tells PaymentsSource. Analyst consensus anticipated the company would report $435 million in second-quarter revenue.
Global Payments says its operating margin, which reflects the profitable percentage of each transaction, was 19.6% in the fiscal 2011 second quarter, down from 21.7% a year earlier but up slightly from 19.4% in the fiscal 2011 first quarter.
Revenue growth in all regions except Europe was positive, Peller says.
“Asia was seriously strong, but [Global Payments] made it pretty clear one customer boosted a program,” he says. Atlanta-based Global Payments did not disclose the client’s identity during a Jan. 7 conference call with analysts to discuss the company’s second quarter financial results.
Global Payments’ Asia-Pacific customers generated $36.5 million in revenue during the quarter, up 42.6% from $25.6 million a year earlier. Revenue from Canada was up 4.2%, to $81.5 million from $78.2 million.
“Canada was a lot better than expected,” Peller says. In his view, Global Payments has been challenged in Canada because it raised prices there, but the situation may be stabilizing.
Paul R. Garcia, Global Payments chairman and CEO, acknowledged during the call that the quarter was a difficult one for the processor’s Canadian operations. “During September, we made a difficult decision to eliminate over 70 positions in Canada to match our investment levels to the near-term economic opportunity in that market,” Garcia says.
To address the “opportunity,” Global Payments intends to increase the revenue coming from independent sales organizations, says Jeffrey S. Sloan, the company’s president. “A core part of our strategy is to grow our share on the pie up in Canada,” Sloan says.
Besides eliminating jobs, the payment processor is looking at ways to grow revenue in Canada, he says. Having a competitive price is part of that growth strategy, Sloan says. “But gaining share with existing customers (and) adding new customers, including additional ISOs, is part of our strategy in the business.”
ISOs working with Global Payments are having an influence on the company’s revenue in the U.S. Second-quarter U.S. revenue was up 11.2%, to $245.7 million from $220.9 million a year earlier.
“The year-over-year growth continues to be fueled by strong ISO growth,” notes David J. Koning, an analyst with Robert W. Baird & Co. Inc. of Milwaukee.
“ISOs are a great model,” Garcia says. “ISOs are a great revenue generator.”
Global Payments also is active in making joint-venture deals to help generate revenue. Its most recent joint venture is with Spain-based bank La Caixa, which will add access to more than 150,000 merchants in Spain (
Garcia expects the venture to “grow significantly.”
La Caixa processes about 20% of Spain’s merchant transactions, making it the country’s largest acquirer, according to Koning. The next three largest competitors combined represent from 20% to 25% of the market, he notes.
The joint venture could add between $25 million and $30 million in annual revenue, says Daniel Perlin, an analyst with RBC Capital Markets.
Global Payments’ European operations generated $79.9 million in revenue during the quarter, down 5% from $84.1 million a year earlier. The United Kingdom and Russia performed well, but the company’s operations in the Czech Republic “remains challenged,” Baird’s Koning notes.
Meanwhile, Garcia does not see the potential effects of pending U.S. debit interchange regulation as necessarily having a potential negative effect for Global Payments. (
“I have said from Day One interchange will do down. Interchange is going to go down,” Garcia said during the call. “That is good for all of the acquirers.”
Those acquirers not passing along their entire debit-interchange costs will see a pick up in revenue, Garcia said. “We’re going to be very cautious because it is not only a very competitive market, you don’t want to invite any regulations of something.”
At least one Global Payments competitor is saying it will pass along the entire reduction, Garcia says told analysts during the call.
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