TSYS grapples with job cuts, Brexit impact, falling stock price

Since releasing its second-quarter earnings report early last week, shares of TSYS stock have taken their lumps, dropping about 14 percent through Tuesday, regaining a bit of that lost ground on Wednesday to only give much of it back in Thursday’s trading.

TSYS shares did rise slightly Friday on the New York Stock Exchange, with the overall markets moving upward, closing 34 cents higher at $49.32 apiece. The stock is down 13 percent from July 26, the day the firm released its financial report.

It has been enough turbulence to ask the Columbus-based credit-card and payment processor what is going on and should shareholders be concerned. The official company line on the tumbling stock is that it can’t comment too much about that.

“Bottom line on the stock is the market’s been down several days overall. Then across the board, too, in the financial sector a lot of folks are down,” said Robie Cline, senior director of TSYS Global Brand and Corporate Communications.

Digging deeper, the global processing firm did acknowledge in its second-quarter conference call with analysts that there are issues weighing on earnings in the current third quarter. Those include a company-wide efficiency effort that will eliminate jobs in certain areas.

Cline would not say which areas are feeling the brunt of job cuts or how small or large they might be. The only indication from TSYS is that it will cost the firm between $5 million and $7 million in severance expenses, which could pinch earnings per share 2 cents apiece in its third-quarter report.

“It’s part of normal doing business,” Cline said of the efficiency move, explaining company leadership has communicated via email with employees about the elimination of some jobs globally and why it was being done just after TSYS reported a profit of nearly $70 million on revenues of nearly $1.2 billion in the April-June period.

“What we’ve told employees is it will begin in August. We hope to have it wrapped up in September,” Cline said of the cuts. “It’s definitely not just in Columbus. … it is global.”

TSYS employs about 11,800 worldwide. That includes the 1,000 staffers added with its $2.35 billion purchase earlier this year of merchant processing specialty firm TransFirst. It also includes 4,950 people working in Columbus at its corporate headquarters and other facilities on the city’s north side.

TransFirst was headquartered in Hauppauge, N.Y., with other locations in the U.S., but it is now being blended with the existing merchant processing business at TSYS. Management at TSYS hasn’t said how many employees within the former TransFirst operation might be impacted by the integration of the two.

The acquisition of TransFirst — the largest purchase in TSYS history — was obviously pricey and that was indicated in the second-quarter earnings conference call with Wall Street analysts who follow the firm. Chief Financial Officer Paul Todd said the goal is to eliminate $800 million of the debt from the purchase within two years of the acquisition. It accelerated repayment of $125 million of that in the quarter.

There also is the issue of Great Britain’s surprise vote several weeks ago to exit the European Union, a move dubbed “Brexit,” that opens up all kinds of potential problems for companies doing business in Europe. TSYS has become a card-processing player there with plans to steadily grow its presence.

“The UK vote to leave the European Union has created an overall air of uncertainty in political, social and economic circles across the globe,” TSYS Chairman and Chief Executive Officer Troy Woods said on the conference call. Thus far, he noted, it has been business as usual with TSYS.

“There are many different views on Brexit’s longer-term impact and the potential implications that it may or may not cause,” he said. “We will continue to monitor these developments closely, and will take appropriate actions when and if deemed necessary.”

Todd did say that if the exchange rate between the pound and euro to the dollar remains where it’s at currently, it could possibly cut another 2 cents out of TSYS earnings in the third quarter. He said it’s too early to tell at this point.

The chief financial officer also mentioned that the company’s tax rate pushed above 38 percent in the second quarter due to some one-time “acquisition-related effects” surrounding TransFirst, which contributed to TSYS revenues in the period. That should balance out a bit in the second half of 2016, he said, with the full-year tax rate around 35 percent.

Whether the recent financial developments and internal moves surrounding TSYS pushed its stock lower temporarily or longer term remain to be seen. The fact is TSYS shares closed at $56.54 apiece on July 26, the day it released its earnings report and 15 cents off its 52-week high of $56.69 per share. They trended downward to close at $48.56 per share on Tuesday, a 14 percent drop, rising slightly on Wednesday, dipping again Thursday, then gaining 34 cents on Friday to finish the week at $49.32. That’s 13 percent lower than the day its earnings report was released. The stock’s 52-week trading low is $37.47 per share.

Murray Solomon, an investment broker and financial consultant with the Raymond James office in Columbus, said he hasn’t had any contact from investors concerned about TSYS and its declining stock price.

“It’s actually been one of the surprises for me this year. I wasn’t paying a lot of attention to it, and it kept going up,” said Solomon, surmising that “maybe it got ahead of itself a little bit.”

That could be the case, considering the last dramatic moment for TSYS shares came in late January, the day after it announced the huge TransFirst purchase and issued a solid earnings report for 2015 and its fourth quarter. That day, the stock plunged from $46 per share to $39.22, which was down $6.78 apiece, or nearly 15 percent.

At that time, Deutsche Bank research analyst Byran Keane said in a report that the $2.35 billion transaction came at a “significant premium” over the $1.5 billion paid by its previous owner, Vista Equity, just a year before. He mentioned the debt being used for the acquisition and that it could put a drag on overall financial numbers of TSYS for some time despite “cost synergies” realized by it bringing TransFirst into the fold. Those synergies, or savings, could total $15 million in 2017.

After the second-quarter earnings information was released last week, Credit Suisse research analyst Paul Condra issued a report noting that TSYS said it will be toward the lower end of its full-year earnings per share guidance of $2.78 to $2.85. He also projected a 52-week price target of $58 per share for TSYS stock.

This story was originally published August 3, 2016 at 6:31 PM with the headline "TSYS grapples with job cuts, Brexit impact, falling stock price."