A month has gone by since the last earnings report for Global Payments (GPN). Shares have added about 4.7% 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 drivers.
Global Payments Q2 Earnings Beat on Transaction Growth
Global Payments reported second-quarter 2024 adjusted earnings per share (EPS) of $2.93, which beat the Zacks Consensus Estimate of $2.91. The bottom line rose 11.8% year over year.
Adjusted net revenues improved 5.5% year over year to $2.32 billion. The top line surpassed the consensus mark of $2.31 billion.
The strong quarterly results were aided by growth in transaction volumes and a rise in traditional accounts in the Issuer Solutions segment. A decline in interest and other expenses also favored the second-quarter results. However, a rise in operating expenses partially offset the results.
Operating Performance
Adjusted operating income of $1.1 billion increased 6.4% year over year in the quarter under review and beat our estimate of $1 billion. Adjusted operating margin improved 40 basis points (bps) year over year to 45.2%.
Total operating expenses of $2 billion increased 7.9% year over year in the second quarter. The increase was due to higher selling, general and administrative expenses, and losses incurred on business dispositions in the year-ago period. The metric lagged our estimate of $2.1 billion. Interest and other expenses declined 16.9% year over year to $159.2 million and lagged our estimate of $167.5 million.
Segmental Performances
Merchant Solutions: The segment recorded adjusted revenues of $1.81 billion in the second quarter, which rose 7.8% year over year. The figure surpassed our estimate of $1.79 billion. The year-over-year growth resulted from double-digit growth in the ISV channel, more than 20% growth in the LATAM region, and volume growth of 6%.
The unit’s adjusted operating income increased 8.5% year over year to $884.8 million and beat our estimate of $868.2 million.
Issuer Solutions: Adjusted revenues were $526.5 million in the segment, which grew 4.2% year over year in the quarter under review but missed the Zacks Consensus Estimate of $535.6 million. The unit benefited on the back of a rise in traditional accounts on file and rising transactions.
Adjusted operating income improved 4.5% year over year to $246.6 million, lower than our estimate of $253.1 million.
Financial Position (as of Jun 30, 2024)
Global Payments exited the second quarter with cash and cash equivalents of $2.1 billion, which remained flat from $2.1 billion at 2023-end.
Total assets of $50.8 billion climbed from $50.6 billion at 2023-end.
Long-term debt amounted to $15.6 billion, down from $15.7 billion at 2023-end. The current portion of long-term debt totaled $1.6 billion at the second-quarter end.
Total equity of $23 billion declined from $23.3 billion at 2023-end.
GPN generated operating cash flows of $1.15 billion in the first half of 2024, which declined 1% year over year.
Capital Deployment Update
The company bought back shares worth $900 million in the first half of 2024.
It declared a quarterly dividend of 25 cents per share, which will be paid out on Sep 27, 2024, to its shareholders of record as of Sep 13.
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 be between 5% and 6% 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 30 bps and 50 bps, respectively.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month.
VGM Scores
At this time, Global Payments has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. 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, Bread Financial Holdings (BFH), has gained 18.8% over the past month. More than a month has passed since the company reported results for the quarter ended June 2024.
Bread Financial reported revenues of $939 million in the last reported quarter, representing a year-over-year change of -1.4%. EPS of $2.66 for the same period compares with $1.27 a year ago.
Bread Financial is expected to post earnings of $2 per share for the current quarter, representing a year-over-year change of -42.2%. Over the last 30 days, the Zacks Consensus Estimate has changed +5.4%.
Bread Financial has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of A.
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