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Why Is Global Payments (GPN) Down 12.2% Since Last Earnings Report?

It has been about a month since the last earnings report for Global Payments (GPN). Shares have lost about 12.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Global Payments due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Global Payments' Q3 Earnings Miss, Revenues Grow Y/Y

Global Payments reported third-quarter 2022 adjusted earnings per share (EPS) of $2.48, which missed the Zacks Consensus Estimate by a whisker. Yet, the bottom line rose 14% year over year.

GPN’s adjusted net revenues advanced 3% year over year to $2,058.2 million in the third quarter. The top line beat the consensus mark by a whisker as well.

The quarterly results were hampered by elevated operating costs resulting from higher selling, general and administrative expenses. However, the downside was partly offset by sound contributions from its Merchant and Issuer businesses.

Operating Performance

Adjusted operating margin of 45.2% improved 240 basis points (bps) year over year in the quarter under review.

Total operating expenses increased 5.4% year over year to $1,898.9 million.  
Adjusted operating income of $930.6 million grew 8.8% year over year in the third quarter.

Segmental Update

As the divestiture of Global Payments’ consumer business is impending and alterations have been made in the manner of operating the business, management reorganized the businesses earlier forming a part of the Business and Consumer Solutions segment. The business-to-business part is integrated into the Issuer Solutions segment, while the consumer unit is attached to the Consumer Solutions segment. Subsequently, the three reportable segments emerged as Merchant Solutions, Issuer Solutions and Consumer Solutions from the third quarter of 2022.

Segmental Performances

Merchant Solutions: The segment’s adjusted revenues of $1,450 million rose 6.8% year over year on 11% global constant currency volume growth, excluding the impact of the exit of the Russia business. The figure came lower than the Zacks Consensus Estimate of $1,481 million. Adjusted operating income advanced 8.2% year over year to $724.4 million.

Issuer Solutions: Adjusted revenues of the segment amounted to $489.1  million, which inched up 1.7% year over year in the third quarter. The figure stood lower than the consensus mark of $497 million. The segment’s results were driven by commercial card transaction growth of 25%. Adjusted operating income grew 9% year over year to $226.8 million.

Consumer Solutions: The segment reported adjusted revenues of $142.6 million, down 22.3% year over year in the quarter under review. Adjusted operating income of $54 million climbed 24.2% year over year.

Financial Position (as of Sep 30, 2022)

Global Payments exited the third quarter with cash and cash equivalents of $1,993.8 million, up 0.7% from the 2021-end level.

Total assets of $43.9 billion declined 3% from the level at the 2021 end.

Long-term debt amounting to $12.3 billion increased 7.7% from the figure as of Dec 31, 2021. The current portion of long-term debt was $1,157.8 million at the third-quarter-end.

Total equity fell 11.6% from the 2021-end level to $22.9 billion.

During the first nine months ended Sep 30, 2022, net cash provided by operating activities came in at $1,534.5 million, which declined 24.3% from the prior-year comparable period’s level.

Capital Deployment

Global Payments bought back shares worth $889.7 million during the third quarter. An increase in the capacity of GPN’s share buyback program was made to bring the total authorization amount to $1.5 billion.

Management sanctioned a quarterly dividend of 25 cents per share, which will be paid out on Dec 30, 2022, to its shareholders of record as of Dec 16.

Business Update

Global Payments inked a definitive deal to purchase the leading payment technology and services provider EVO Payments. GPN had also inked a deal to divest consumer assets of Netspend to Searchlight Capital and Rev Worldwide. Both transactions, likely to be completed in the first quarter of 2023 (subject to a regulatory nod and a customary approval), received Hart-Scott-Rodino (HSR) clearance in the United States.

2022 Guidance

Management continues to expect 10-11% growth in adjusted net revenues from the reported figure of 2022, on a constant currency basis and before dispositions.

Global Payments reiterates the revenue guidance in both the Merchant Solutions and Issuer Solutions segments. On a constant currency basis, revenues of both segments are expected to continue witnessing low double-digit and mid-to-high-single digit growth, respectively, in 2022.  

Adjusted EPS, on a constant currency basis, is continued to be anticipated within $9.53-$9.75, the midpoint of which suggests growth of 17-20% from the 2021 reported figure. GPN expects to convert almost 100% of adjusted net income into adjusted free cash flow.

Management projects the adjusted operating margin to increase up to 170 bps this year from the 2021 level, while the earlier estimate predicted the metric to expand up to 150 bps from the year-ago reported figure.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month.

VGM Scores

Currently, Global Payments has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Global Payments has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Global Payments belongs to the Zacks Financial Transaction Services industry. Another stock from the same industry, Equifax (EFX), has gained 11.8% over the past month. More than a month has passed since the company reported results for the quarter ended September 2022.

Equifax reported revenues of $1.24 billion in the last reported quarter, representing a year-over-year change of +1.8%. EPS of $1.73 for the same period compares with $1.85 a year ago.

Equifax is expected to post earnings of $1.49 per share for the current quarter, representing a year-over-year change of -19%. Over the last 30 days, the Zacks Consensus Estimate has changed -0.2%.

Equifax has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of C.

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