Plans $700 Million in Share Repurchases by End of 2007
DENVER, Oct 23, 2006 (BUSINESS WIRE) -- 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
(non-cash)................................................. $0.12
-- 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
Segment Results
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 improved 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.
Outlook
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.
Non-GAAP Measures
In certain circumstances, results have been presented that are non-GAAP measures and should be viewed in addition to, and not in lieu of, the company's reported results. Reconciliations to comparable GAAP (generally accepted accounting principles) measures are available in the accompanying schedules and in the "Invest" section of the company's web site at www.firstdata.com.
Investor and Analyst Conference Call
First Data will hold an investor and analyst conference call tomorrow Tuesday, October 24 at 8:00 a.m. EDT. Ric Duques, chairman and CEO, will host the call. To listen to the broadcast and view management's slide presentation, please log on to www.firstdata.com, and click on the link under the Invest section at least 15 minutes prior to the start of the call. To participate in the call, dial 888-831-9087 (U.S.) or +1-773-799-3935 (outside the U.S.) ten minutes prior to the start of the call and enter passcode FDC. A replay of the call will be available one hour after the call ends through October 31 at 5:00 p.m. EDT at 866-357-4211 (U.S.) or +1-203-369-0126 (outside the U.S.) and via webcast on www.firstdata.com. No passcode is required.
Please note: All statements made by First Data officers on this call are the property of First Data and subject to copyright protection. Other than the replay, First Data has not authorized, and disclaims responsibility for any recording, replay or distribution of any transcription of this call.
About First Data
First Data Corp. (NYSE: FDC) is a leading provider of electronic commerce and payment solutions for businesses and consumers worldwide, serving 4.6 million merchant locations, 1,900 card issuers and their customers. First Data powers the global economy by making it easy, fast and secure for people and businesses around the world to buy goods and services using virtually any form of payment. The company's portfolio of services and solutions includes credit, debit, private-label, gift and other prepaid card issuing and merchant transaction processing services; money orders; fraud protection and authentication solutions; check guarantee and verification services through TeleCheck; as well as Internet commerce and mobile solutions. The company's STAR Network offers PIN-secured debit acceptance at 2.0 million ATM and retail locations. For more information, visit www.firstdata.com.
Notice to Investors, Prospective Investors and the Investment Community; Cautionary Information Regarding Forward-Looking Statements
Statements in this press release regarding First Data Corporation's business which are not historical facts, including the revenue and earnings estimates, are "forward-looking statements." All forward-looking statements are inherently uncertain as they are based on various expectations and assumptions concerning future events and they are subject to numerous known and unknown risks and uncertainties which could cause actual events or results to differ materially from those projected. Important factors upon which the Company's forward-looking statements are premised include: (a) continued growth at rates approximating recent levels for card-based payment transactions and other product markets; (b) successful conversions under service contracts with major clients; © renewal of material contracts in the Company's business units consistent with past experience; (d) timely, successful and cost-effective implementation of processing systems to provide new products, improved functionality and increased efficiencies;(e) successful and timely integration of significant businesses and technologies acquired by the Company and realization of anticipated synergies; (f) continuing development and maintenance of appropriate business continuity plans for the Company's processing systems based on the needs and risks relative to each such system; (g) absence of further consolidation among client financial institutions or other client groups which has a significant impact on FDC client relationships and no material loss of business from significant customers of the Company; (h) achieving planned revenue growth throughout the Company, including in the merchant alliance program which involves several joint ventures not under the sole control of the Company and each of which acts independently of the others, and successful management of pricing pressures through cost efficiencies and other cost-management initiatives; (i) successfully managing the credit and fraud risks in the Company's business units and the merchant alliances, particularly in the context of the developing e-commerce markets; (j) anticipation of and response to technological changes, particularly with respect to e-commerce; (k) attracting and retaining qualified key employees; (l) no unanticipated changes in laws, regulations, credit card association rules or other industry standards affecting FDC's businesses which require significant product redevelopment efforts, reduce the market for or value of its products or render products obsolete; (m) continuation of the existing interest rate environment so as to avoid increases in agent fees related to IPS' products and increases in interest on the Company's borrowings; (n) no unanticipated developments relating to previously disclosed lawsuits, investigations or similar matters; (o) no catastrophic events that could impact the Company's or its major customer's operating facilities, communication systems and technology or that has a material negative impact on current economic conditions or levels of consumer spending; (p) no material breach of security of any of our systems; and (q) successfully managing the potential both for patent protection and patent liability in the context of rapidly developing legal framework for expansive software patent protection.
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