First Data Reports Record Second Quarter Earnings
- Growth Driven by Strong Western Union Performance -
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DENVER, July 11 /PRNewswire-FirstCall/ -- First Data Corp. (NYSE: FDC), today reported strong second quarter growth in revenue and record second quarter earnings due largely to the outstanding performance of Western Union. On a recurring operations basis, earnings per share grew 21% to $0.41 up from 2001 pro forma earnings per share of $0.34 on revenue of $1.875 billion, which was up 10%. Reported revenue increased 9% and reported earnings per share grew 11% over 2001 pro forma earnings per share. Free cash flow after capital expenditures was approximately $315 million.
"First Data continues to deliver strong revenue and exceptional earnings and free cash flow growth. During the quarter, revenue growth was driven by improving consumer spending and transaction growth, product expansion, and new Western Union agent locations," said Chief Executive Officer Charlie Fote. Fote noted that with two full quarters in the books, and the current trends and opportunities in the business segments, First Data expects to achieve its annual guidance of 14-17% revenue growth and 15-18% EPS growth.
(All references to pro forma figures in this release relate to the pro forma impact on 2001 results from the adoption of Statement of Financial Accounting Standards No. 142 (SFAS 142), which requires the elimination of goodwill amortization expense. Recurring operations exclude the results of divested and discontinued businesses and nonrecurring items as detailed in the accompanying schedules.)
Business Segment Highlights
Payment Services, the company's largest business segment comprised largely of Western Union, accounts for more than 40% of First Data revenue. Revenue for the segment increased by 17% to $780 million, and profits of $246 million increased by 21% over 2001 pro forma profits of $204 million. Corresponding profit margins improved to 31.5% in the second quarter as compared to 30.5% in second quarter 2001. Expanded product offerings, increasing global demand for money transfers and disciplined expense management combined to help Payment Services deliver sound operating results.
Consistent with growth objectives, an integral component of Western Union's strategy is to make commerce more convenient by bringing innovative offerings to an extensive consumer base through its distribution network. ValueLink, the company's prepaid stored-value service, increased transactions more than 70% in the second quarter to nearly 140 million. Additionally, two recent acquisitions are examples of this: Paymap Inc. and E Commerce Group Products, Inc. In April, the company acquired Paymap Inc., a financial services company that develops and markets innovative electronic payment services such as a mortgage payment accelerator. In June, the company closed on the acquisition of E Commerce Group Products, Inc., a provider of a comprehensive suite of e-commerce offerings including Speedpay, a proprietary technology that allows companies to receive electronic bill payments through multiple sources including call centers, automated voice response units and the Internet.
Excluding the acquisitions of Paymap Inc. and E Commerce Group Products, Inc., Western Union's worldwide money transfer transaction growth was 18% for the second quarter. Including these acquisitions, Western Union posted a 43% transaction growth rate for the second quarter. The company will continue to drive transaction growth by branding more products and offerings with its well-known Western Union brand.
Western Union International delivered solid transaction growth of more than 32% and revenue growth of 25%, somewhat higher than expectations. Western Union International continues to excel given the ongoing geo-political and economic issues in certain corridors.
During the quarter, Western Union continued to execute on its growth strategy by expanding its agent network 20% compared to second quarter 2001 to approximately 130,000 locations with key signings including the Australia Post, Pakistan Post, Industrial Bank of Korea, United Arab Emirates Post, Bank Rakyat Indonesia, and the Post of Tajikistan. In addition, the pipeline of agent locations signed and scheduled to be installed before year-end 2003 is nearly 29,000.
The ramp-up in China and India continues on schedule with more than 7,800 locations installed in these two countries. Western Union is well on track to installing its target of 20,000 India Post and China locations by year-end 2003.
In Mexico, both money transfer services, Western Union and Orlandi Valuta, had a very strong quarter. Both brands achieved high-single-digit transaction growth as a result of a stronger consumer value proposition and a solid agent base of nearly 7,000 locations in Mexico.
In addition, First Data recorded a nonrecurring after-tax charge of $19 million related to the anticipated settlements of the class action lawsuits pertaining to the company's money transfer business. Management expects these settlements, when approved by the courts and implemented, should finally resolve this pending money transfer litigation.
Card Issuing Services, the world's largest third-party processor, accounts for approximately 25% of First Data's revenue. As anticipated due to prior year deconversions, revenue decreased 5% to $462 million, while operating profits of $91 million were up 1% from 2001 pro forma profits of $90 million. Corresponding profit margins improved to 19.6% compared to 18.4% in second quarter 2001.
As of June 30, 2002, the company's accounts on file were 315 million. Card Issuing Services has more than 70 million retail, debit and bankcard accounts in the pipeline for conversion, with approximately 13 million accounts scheduled for conversion during 2002.
During the quarter, several key enhancements of the Multi-Year System Redesign were implemented. The company remains committed to delivering more value to its customers through this effort. In addition, Card Issuing Services made enhancements to smart card functionality, and PaySys International signed a new licensing agreement with Samsung Card Co., Ltd.
This segment signed several significant deals during the quarter including one with Bank of America and another with JP Morgan Chase. The JP Morgan Chase deal is a multi-year agreement to produce and mail letters and statements for several retail lines of business including credit cards, home finance and auto finance.
Merchant Services, comprised primarily of First Data Merchant Services and TeleCheck, accounts for approximately 35% of the company's revenue. Revenue grew 15% for the second quarter to $647 million. Profits of $194 million rose 14% over 2001 pro forma profits of $170 million. Merchant processing transactions grew 14% for the second quarter to 2.5 billion.
Merchant Services recorded $15 million from the sale of its interest in a small alliance portfolio. This helped fund incremental feature and functionality expenditures in the Merchant Services business. In addition, results were aided by TeleCheck's acquisition of International Check Services, Inc., and lower check losses.
Transaction growth was fueled by the segment's increasing expansion of debit processing to existing clients and penetration into new vertical markets focused on lower average face transactions. The incremental expenditures on new debit processing feature and functionality enhancements, new vertical markets, and related products has led directly to both new merchant signings and increased volumes from existing merchants.
Merchant Services was successful during the quarter in signing nearly 80,000 new merchants. The segment is on track to add its target of 300,000 new merchants in 2002.
Emerging Payments, First Data's eONE Global business, which accounts for 2% of revenue, reported $41 million in revenue for the quarter, a growth rate of 98% due primarily to acquisitions. During the quarter, the company expanded its reach as govONE Solutions acquired GovConnect, Inc., a leading provider of professional services, technology system solutions and transaction processing to state and local government agencies.
In May, eONE Global and Sprint announced plans to establish a mobile payments network in the United States to enable consumers to make payments and purchases with their wireless devices. Encorus, a subsidiary of eONE Global, will provide the electronic wallet software, and First Data will provide the payment processing platform and merchant network.
eONE Global decided to continue supporting existing SurePay customers, but will cease further activities related to the development of the Internet payment gateway and as a result recorded asset impairment charges totaling $5 million after tax.
Other Highlights
In May, First Data announced that its board of directors authorized an additional $500 million for stock buyback. During the quarter, the company repurchased 8.7 million shares for $344 million. The remaining authorization for stock repurchases is $657 million.
First Data recorded an after-tax gain of $5 million on the sale of one million shares of CheckFree Corporation stock at an average price of $24.
Emerging Issues Task Force Issue No. 01-14
In January 2002, First Data adopted EITF 01-14, "Income Statement Characterization of Reimbursements Received for 'Out-of-Pocket' Expenses Incurred" which requires that reimbursements received for "out-of-pocket" expenses be characterized as revenue. As a result of the adoption, results for 2001 have been restated to increase revenue and expenses. The adoption had no impact on net income.
Conference Call
First Data will hold a conference call today at 8:00 a.m. EDT to discuss the company's second quarter financial performance. Charlie Fote, president and chief executive officer, and Kim Patmore, chief financial officer, will host the call. The call will be open to the public. The conference call can be accessed by calling 888-831-9087 (in the U.S.) or 712-271-0843 (internationally) and passcode: FDC. A replay of the call is available at 800-568-6276 (no passcode required) through 5 p.m. EDT on July 19.
This call will be broadcast on the company's website at www.firstdata.com . Interested parties are encouraged to click on the webcast link 10-15 minutes prior to the start of the conference call. |
