It has been about a month since the last earnings report for Global Payments (GPN). Shares have added about 15.1% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Global Payments due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Global Payments Q3 Earnings Miss Estimates on Higher Costs
Global Payments reported third-quarter 2024 adjusted earnings per share (EPS) of $3.08, which missed the Zacks Consensus Estimate of $3.11. The bottom line rose 12% year over year.
Adjusted net revenues improved 5.8% year over year to $2.36 billion. The top line missed the consensus mark of $2.38 billion.
The weaker-than-expected quarterly results were caused by rising selling, general and administrative expenses, and cost of service. However, a rise in traditional accounts in the Issuer Solutions segment. Booking growth and expansion of the partner network partially offset the results.
Operating Performance
Adjusted operating income of $1.1 billion increased 6.6% year over year in the quarter under review but marginally missed our estimate of $1.11 billion. Adjusted operating margin improved 40 basis points (bps) year over year to 46.1%.
Total operating expenses of $2.1 billion increased 10.9% year over year in the third quarter. The increase was due to higher selling, general and administrative expenses, and cost of service. The metric came in higher than our estimate of $1.3 billion. Interest and other expenses declined 11.5% year over year to $155.9 million and lagged our estimate of $163.6 million.
Segmental Performances
Merchant Solutions: The segment recorded adjusted revenues of $1.84 billion in the third quarter, which rose 6.7% year over year. The figure lagged our estimate of $1.85 billion. The year-over-year growth resulted from 30% booking growth, new POS locations and an expanding partner network.
The unit’s adjusted operating income increased 8.7% year over year to $921.5 million and beat our estimate of $906.2 million.
Issuer Solutions: Adjusted revenues were $529 million in the segment, which grew 6.7% year over year in the quarter under review but missed the Zacks Consensus Estimate of $549.2 million. The unit benefited from the rise in traditional accounts on file and rising transactions.
Adjusted operating income deteriorated 2.5% year over year to $240.4 million, lower than our estimate of $258.7 million.
Financial Position (as of Sept 30, 2024)
Global Payments exited the third quarter with cash and cash equivalents of $2.9 billion, which remained flat from $2.1 billion at 2023-end.
Total assets of $50 billion declined from $50.6 billion at 2023-end.
Long-term debt amounted to $15.2 billion, down from $15.7 billion at 2023-end. The current portion of long-term debt totaled $1.6 billion at the third-quarter end.
Total equity of $23.5 billion increased from $23.3 billion at 2023-end.
GPN generated operating cash flows of $2.9 billion in the first nine months of 2024, which surged 80.9% year over year.
Capital Deployment Update
The company entered into a $600 million accelerated share repurchase program.
It declared a quarterly dividend of 25 cents per share, which will be paid out on Dec. 27, 2024, to its shareholders of record as of Dec. 13.
Divestiture Update
GPN entered a definitive agreement to sell AdvancedMD to Fransisco Partners for $1.125 billion. The sale is expected to close by the fourth quarter.
2024 Outlook Reiterated
Adjusted net revenues are anticipated to lie within $9.17-$9.30 billion, which indicates an improvement of 6-7% from the 2023 figure of $8.7 billion.
Adjusted net revenue growth in the Merchant Solutions segment is estimated to witness year-over-year growth of more than 9% in 2024 from the 2023 figure of $6.5 billion. The Issuer Solutions segment’s adjusted net revenues are forecasted to grow approximately 4% from the 2023 figure of $2 billion.
Adjusted EPS is anticipated to be between $11.54 and $11.70 in 2024, which suggests 11-12% growth from the 2023 figure of $10.42. GPN expects to convert almost 100% of adjusted net income into adjusted free cash flow.
The annual adjusted operating margin is expected to increase up to 50 bps in 2024. The metric in both segments is projected to witness an increase of up to 40 bps and 30 bps, respectively.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month.
VGM Scores
At this time, Global Payments has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top 20% 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 trending downward for the stock, and the magnitude of these revisions has been net zero. 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, Visa (V), has gained 8.6% over the past month. More than a month has passed since the company reported results for the quarter ended September 2024.
Visa reported revenues of $9.62 billion in the last reported quarter, representing a year-over-year change of +11.7%. EPS of $2.71 for the same period compares with $2.33 a year ago.
Visa is expected to post earnings of $2.67 per share for the current quarter, representing a year-over-year change of +10.8%. Over the last 30 days, the Zacks Consensus Estimate has changed -1%.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Visa. Also, the stock has a VGM Score of C.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
