TSYS profit drops 29 percent to $85.3 million in third quarter

Global credit-card and payment processor TSYS reported Tuesday a profit of $85.3 million in the third quarter of this year. That was on total revenues of $1.1 billion.

The profit, or net income, was down 29 percent from the $120.6 million the company posted in the same July-September period a year ago, while revenues were up 62 percent from the $707.8 million it racked up in the same quarter of last year.

Diluted earnings per share came in at 46 cents, which was 29 percent lower than the 66 cents per share the company saw a year ago.

“We were very pleased with this quarter’s financial performance as all four of our operating segments exceeded our expectations,” Troy Woods, TSYS chairman and chief executive officer, said in a statement. “We remain on track with our TransFirst integration activities and continue to be laser-focused on successfully combining our legacy merchant businesses with TransFirst.”

TSYS attributed some of the decline in net income to $23.6 million in tax-related benefits it received in the third quarter of 2015. It said adjusted earnings per share — which subtracts such one-time gains and losses — were 71 cents per share, still nearly 9 percent lower than a year ago, when adjusted earnings per share were 78 cents.

The company also noted that a “rapid and steep decline” in the British pound versus the U.S. dollar had a negative impact on total revenues and net revenue of $14 million and $13 million, respectively, as compared to a year ago. That currency impact is expected to continue in the current October-December quarter, it said. Britain’s citizens voted by a narrow margin in June to leave the European Union, a move that experts anticipated will roil the British economy as that nation moves toward its official departure from the EU by 2019.

In terms of generating revenues and cash flow, however, TSYS continued to do so during the quarter. Offsetting a decline in its International Services business was a sharp increase in Merchant Services, along with solid boosts from prepaid card specialty subsidiary NetSpend and from North America Services.

“Our cash flow from operating activities and free cash flow for the first nine months of the year were both records,” Woods said. “This allowed us to reduce our debt by $175 million during the quarter, bringing the total debt reduction to $300 million year to date.”

This is the second quarter that TSYS has benefited from its $2.35 billion acquisition of merchant specialty firm TransFirst, which it is now blending into its existing merchant operation that helps businesses get set up for accepting monetary transactions with customers and having them authorized and completed. Net revenue for Merchant Services leaped 112 percent in the third quarter, it said, although growth from existing clients is in the high single digits, similar to the rest of the industry.

NetSpend, which is based in Austin, Texas, experienced more than 11 percent growth in its “organic,” or existing customer, revenues in the quarter, with the number of active direct-deposit cards held by customers jumping nearly 16 percent. TSYS noted that Consumer Financial Protection Bureau rules issued on Oct. 5, which are aimed at protecting those people using prepaid cards and accounts, shouldn’t have a significant financial impact on earnings this year.

TSYS management did revise its overall 2016 revenues projections slightly lower because of the British currency impact. It said adjusted earnings for the year should come in between $2.78 and $2.85 per share, which would be 13 to 16 percent higher than in 2015. Basic earnings per share, which does not subtract one-time gains and losses, are expected to be between $1.77, down 10 percent, and $1.83, down 7 percent, from last year.

The company reported its financial numbers through the first nine months of 2016 as well Tuesday. Its profit fell 12.6 percent from $281.2 million in the January-September period a year ago to $245.7 million in the latest nine months. Total revenues jumped 47.3 percent from just over $2 billion to slightly more than $3 billion.

(Read more: TSYS cutting jobs, offering severance as part of restructuring)

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The only mention in its earnings report of the recent restructuring of the company — which resulted in the layoffs and early retirements of some employees — was a sentence noting “headwinds for currency and severance expenses” that amounted to 6 cents per share.

TSYS released its third-quarter report after the closing bell of the New York Stock Exchange. Its shares ended Tuesday down 7 cents to $48.23. The stock’s 52-week trading range is $37.47 to $56.69 per share.

This story was originally published October 25, 2016 at 4:29 PM with the headline "TSYS profit drops 29 percent to $85.3 million in third quarter."