First Data Corp., the credit-card processor that spun off its Western Union Co. money-transfer unit last month, said third-quarter net income fell 34 percent on higher costs and accounting changes for valuing derivatives.
Net income fell to $342.2 million, or 44 cents a share, from $516.6 million, or 66 cents, a year earlier, Greenwood Village, Colorado-based First Data said in a statement today.
Profit from continuing operations excluding one-time items was 29 cents a share. Per-share estimates of 19 analysts surveyed by Thomson Financial ranged from 27 cents to 35 cents.
Chief Executive Officer Henry “Ric” Duques is trying to revive profit by focusing on transaction services for banks and businesses, rather than money transfers for individuals.
First Data distributed 765 million shares in Western Union to stockholders on Sept. 29. The unit had been the company’s biggest and fastest-growing source of revenue.
“The trends are solid right now,” said Rod MacKinnon, a fund manager at Mountain Pacific Investment Advisers Inc. in Boise, Idaho, who held more 420,000 First Data shares as of September. Going forward “earnings are likely to be biased to the upside.”
First Data predicted today that fourth-quarter earnings from continuing operations will range between 33 cents to 35 cents a share and consolidated revenue will grow at 10 percent or more. First Data had been expected to earn 34 cents a share during the fourth quarter, according to the average estimate of 20 analysts polled by Thomson, which doesn’t disclose whether certain costs or gains are excluded from its projections.
“We are building great momentum and are now 100 percent focused on the needs of our financial institution and merchant clients,” Duques said in the statement. The company said it plans to buy back $700 million shares by the end of 2007.
First Data shares advanced 16 cents to $22.95 in New York Stock Exchange composite trading, before the earnings were released after the close of regular trading. The shares have lost 2 percent this year, in contrast with the 2.6 percent gain in the 10-member S&P 500 Data Processing & Outsourced Services Index.
Third-quarter revenue climbed 9 percent to $1.8 billion from $1.65 billion a year earlier.
Commercial services, First Data’s unit that handles payments for retailers, generated a 10 percent gain in revenue to $1.1 billion. Financial institution services, the division that processes transactions for banks, had a 4 percent drop in revenue to $455 million. Revenue rose 45 percent to $332 million at the company’s international unit, or 11 percent when currency fluctuations and acquisitions were excluded.
The results included a 12 cents-a-share accounting loss reflecting a decline in the market value of derivatives held by the company to hedge against movements in currencies and interest rates. Derivatives are financial instruments derived from stocks, bonds, loans, currencies and commodities, or linked to specific events like changes in the weather.
Reorganization costs related to the spinoff of Western Union and other restructuring expenses during the quarter shaved 3 cents a share from the earnings, while legal and regulatory settlements during the period added 3 cents to profit per share.
“The outlook for the company’s growth and margin expansion prospects hasn’t been this positive since the early part of the decade,” Adam Frisch, an analyst at UBS AG who recommends buying the stock, said in a note to investors on Oct. 20.
Concerns about one-time items are “clouding the fundamental turnaround in the business and distracting investors from FDC’s long-term growth, margin leverage and cash-flow generation potential,” he added.
