First Data Rallies On N. America SMB Efforts

Win a battleground, investors cheer.

First Data saw a turnaround in its North American global business solutions (GBS) operations in the third quarter of 2016, notching the first positive results in several quarters, and that was fuel for a rally of as much as 12 percent intraday in the company’s stock price.

The company said Monday (Nov. 7) that the unit saw 1 percent year-over-year top-line growth to $819 million, coming after two straight quarters of declines north of 2 percent.

The area has been challenging enough for CEO Frank Bisignano in the past to have called it a “battleground,” which could be considered the key in its continued turnaround in the wake of having been spun out of KKR last year.

This time around, it was the continued traction in small and mid-sized business transactions that garnered a spotlight in management commentary. CFO Himanshu Patel said on the call that SMBs, which drive 20 percent of the unit’s sales, are showing lower attrition rates than had been seen in the past and, in fact, saw sequential and year-over-year growth in revenues, contributing positively to the top line of GBS overall. Transaction growth came in at 7 percent, with a dilutive impact of lower blended yield.

“I’ve always said this is a ground game,” said Bisignano of the North American operations. “No silver bullet … It’s not a quarter-to-quarter item; it’s a long-term trajectory item. We’d talked about that we see improvement in the second half.”

Speaking to analysts on the conference call, CFO Patel said that, within the GBS segment, activations of new merchants were gaining ground. Drilling down to sales force efforts, 10 percent of leads were via digital sources, which helps First Data’s productivity. Better merchant SMB performance this quarter, said the CEO, has been tied in part to Clover (which helps businesses with processing and other functions and which the CEO pointed out in a recent interview with PYMNTS’ Karen Webster has been designed to be “a business in a box”), which the firm has seen “perform better” as “an individual item.”

Outside the U.S., growth rates also were positive in the all-important GBS segment, at 2 percent in Europe, though were up 12 percent in Latin America, buoyed by growth in Argentina and the Brazilian acquiring business.

Taken on a consolidated basis, revenues budged up only slightly for First Data, as sales were $2 billion, up 1 percent year over year, though, as measured in constant currency growth, that figure was 3 percent year over year. Earnings met The Street at $0.34 a share.

The GBS segment, which carries sales at $1 billion, grew by 3 percent year over year.

Global financial services (GFS) gained 2 percent on the top line year over year, as, again, North American revenues were up on the back of processing and revenues, even while card personalization sales were down. Those trajectories lapped a strong quarter in 2015 boosted by the shift last year to EMV hardware adoption in the States.

Total North American accounts on file grew by 4 percent. Overall, GFS — admittedly smaller at $397 million than the business services unit — grew relatively faster at 5 percent. GFS, said management, saw strength in Latin America. Pricing pressure continues within the debit segment, management noted, as a year-over-year impact. The CFO also said First Data seeks to maintain an agnostic attitude toward PIN versus PIN-less signature transactions.

Speaking to an analyst query about the relatively new agreements with PayPal, Mastercard and Visa, which prevents PayPal from steering toward ACH, Patel said: “PayPal and First Data have an excellent relationship that is multifaceted … I think it’s fair to say that, if PayPal does well, it is good for us.”

The network security segment was flat year over year for the remainder of sales.

First Data’s capital structure also improved, as the firm reduced net debt to $18.5 billion, from $19.3 billion at the end of 2015.

Looking forward, the company will offer up longer-term plans and financial guidance at an investor day scheduled to be held on Nov. 16 in New York City.

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