First Data Corp. (NYSE: FDC) today reported its financial results for the third quarter of 2006.
The results reflect the spin-off of The Western Union Company. Accordingly, First Data's continuing operation results described below exclude the results of Western Union. First Data's consolidated revenue was $1.8 billion, up 9%. Earnings per share from continuing operations were $0.17 per share or $0.29 per share excluding items.
"Our solid results for the third quarter of 2006 were driven by an above-expectation performance by our Commercial Services segment. Additionally, First Data International delivered strong double-digit organic revenue growth. And, in our Financial Institution segment, where the last of our previously announced deconversions are now behind us, we recorded significant improvements in our profit margin," said Ric Duques, chairman and chief executive officer.
The following items resulted in a net negative impact of $0.12 to earnings per share from continuing operations in the third quarter:
Items negatively impacting EPS included:
-- Changes in derivative values related to SFAS 133
-- Reorganization costs due to the Western Union spin-off..... $0.02
-- Restructuring costs ....................................... $0.01
Items favorably impacting EPS included:
-- Litigation and regulatory settlements ..................... $0.03
For the quarter, Commercial Services generated revenue of $1.1 billion, a very strong 10% growth or 7% excluding reimbursable debit network fees. Third quarter results were driven by solid transaction growth of 13%. Operating profit was $294 million, up 22% or 10% excluding integration expense from 2005. Margin for the quarter improved to 27.8% from 25.0%, or to 34.5% from 33.8% excluding reimbursable debit network fees and 2005 integration costs.
For the quarter, Financial Institution Services generated revenue of $455 million, down 4%. Operating profit was $96 million, down 2%. Margin for the quarter improveddd to 21.2% from 20.8%, or to 31.4% from 29.6% excluding reimbursables. Results were in line with the company's expectations, which included the impact of the grow-over of a large contract termination fee recorded in the third quarter of 2005. The third quarter is the final quarter where the growth rates of the segment will be impacted by the grow-over of previously announced deconversions.
For the quarter, First Data International generated revenue of $332 million, up 45%, and revenue growth on a constant currency basis excluding acquisitions was 11%. Third quarter results were driven by organic transaction growth of 13%. Operating profit was $32 million, up 9% and margin declined to 9.7% from 12.9%. As anticipated, these results are primarily due to significant investments in new business development, infrastructure and platform consolidation, and higher incentive compensation expense in 2006.
For the fourth quarter of 2006, the company anticipates delivering earnings per share in the range of $0.33 to $0.35 from continuing operations. Consolidated revenue growth for the fourth quarter is expected to be double digit. The company will update this EPS estimate at any time it has determined that the estimate is materially inaccurate. Additionally, the company announced it plans to issue full-year guidance for 2007 in January in accordance with prior practice.
The company also announced that it plans to repurchase $700 million of its shares by the end of 2007 under its existing Board authorization.
"We are building great momentum and are now 100% focused on the needs of our financial institution and merchant clients. As we enter 2007, First Data remains in an excellent position to capitalize on and lead the long-term secular shift from cash and checks to credit, debit and prepaid payments around the world," Duques concluded.
Accounting for Derivatives
Income from continuing operations included a $0.12 per share non-cash loss associated with marking to market derivatives that did not qualify for hedge accounting. Such non-cash loss had no impact on the company's cash flows or its total stockholders' equity in comparison to what they would have been had the company qualified for hedge accounting. This is the direct result of the previously announced decision to restate results to reflect the current SEC interpretations of Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities. The non-cash loss offsets non-cash gains reflected in the company's restated Form 10-Q/As for the first two quarters of 2006 and results in a year-to-date net gain of $0.02 per share.
The company noted that the derivatives that have resulted in this volatility were restructured prior to September 30, 2006 to qualify for hedge accounting. Beginning in the company's fourth quarter, changes in the values of these derivatives will no longer flow through earnings.Download the document now 66.5 kb (Adobe Acrobat Document)