Large retailers’ efforts to attract more business are adversely affecting transaction fee revenue at Global Payments Inc., the processor said Jan. 7 when announcing its earnings for its fiscal second quarter ended Nov. 30, 2009.
The Atlanta processor said that some of its biggest clients in Canada are slashing prices, a move that is boosting transaction volume at big retailers but driving down volume at Global’s smaller clients, which generally pay higher rates.
“Our Canadian business continues to be affected by overall macroeconomic conditions, driving large national merchants to heavily discount merchandise and thus take a larger proportional share of transactions away from the small and mid-size merchants that provide higher revenue,” Paul Garcia, Global’s chairman and chief executive, said in a conference call with analysts.
David Mangum, Global’s chief financial officer, also cautioned analysts that this trend, which was somewhat offset by exchange rates, may be specific to Global’s client base. “The overall transaction growth frankly for Canada is about flat for the quarter on a year-over-year basis,” he said.
In the United States, average transaction amounts were down 9% from the prior year, but flat from the prior quarter, Garcia said. “This is actually encouraging, but it’s too early to determine whether this portends for a positive trend.”
Global Payments’ second-quarter revenue grew 12% to $409 million from the same period a year earlier. Its net income grew 28% to $62.8 million. These figures exclude Global’s money transfer business, which it is selling; it announced in November that the private-equity firm Palladium Equity Partners LLC would pay $85 million to $100 million for the unit, depending on its performance. Global said in November that the transfer business provides 6% to 7% of its revenue. It expects to finalize that sale by April.
Garcia also announced that Global’s board has extended his employment agreement, committing him to a minimum of three-and-a-half more years with the company. This “reflects the board’s appreciation for our performance,” he said.
For the company’s 2010 fiscal year, it expects revenue to grow 8% to 10% to a figure of $1.58 billion to $1.615 billion. Its earnings per share are projected to grow 12% to 17% to a figure of $2.35 to $2.46 a share.
Thomas McCrohan, an analyst with Janney Capital Markets, wrote in a research note that Global’s executives are “being conservative in their 2010 guidance due to an uncertain economic environment and potential changing consumer behavior within the United States and Canada.”
McCrohan concluded that the earnings forecasts are based on “some harsh assumptions and [would] likely be very beatable.”
In November, McCrohan praised Global’s decision to sell its transfer business, which he said he viewed as tangential to Global’s main business.
