FDC Spiffs up Merchant Service, Deploys 11,000 FD-100 Terminals

First Data Corp. chairman and chief executive Henry C. “Ric” Duques on Tuesday painted a rosy picture of the downsized card processor during his first earnings conference call since the recent spin-off of First Data's largest division, remittance kingpin Western Union Co. Greenwood Village, Colo.-based First Data posted net income of $342.2 million, down 34% from $516.6 million in 2005's third quarter, on revenues of $1.80 billion, up 9% from $1.65 billion a year earlier. Taking a bite out of earnings from continuing operations were several one-time charges, including a non-cash charge for changes in the value of derivatives. First Data Commercial Services, the merchant-processing unit that is now the company's biggest division post-Western Union, had revenues of $1.1 billion, up 10% from a year earlier. Operating profits jumped 22% to $294 million. First Data has signed 19 new independent sales organizations this year, five in the third quarter alone, Duques told analysts. First Data added 160,000 merchant locations in the third quarter, 30% ahead of last year's pace. “More than 90% of the locations were small and regional merchants,” Duques said, later adding that the company has deployed more than 11,000 of its new FD-100 point-of-sale terminals (Digital Transactions News, Oct. 23). Domestic transactions grew 13% to 6.47 billion from 5.72 billion in the year-earlier period. Duques also said First Data is making progress on merchant service, one of the company's acknowledged weak spots as it embarked on a reorganization early this year. Twenty-two percent of new merchants are live on First Data's network within two days of signing, compared with only 5% a year ago. “We expect to see continued improvement here,” Duques said. First Data Financial Institution Services, the slow-growing cardholder-processing unit that First Data once considered selling, posted segment revenues of $445 million, down 4% from 2005's third quarter, and earnings of $96 million, down 2%. But Duques said the unit is now past the previously announced deconversions of some major portfolios (including the huge JPMorgan Chase & Co. file that is now on the Total System Services Inc. platform) and, after cost cutting and new cross-selling initiatives, is poised for revenue and profit growth of 8% to 10% in 2008. Margins improved early 2 percentage points to 31.4%, excluding reimbursable items. “The issue in this segment has never been profitability, it has been about growth in revenue and profits,” he said. The unit processed 2.45 billion domestic debit transactions in the third quarter, up 23%. Meanwhile, Western Union late Monday reported third-quarter earnings of $258.1 million, up 7% from $241.9 million a year ago. Revenues increased 12% to $1.14 billion from $1.02 billion in the year-earlier period. Western Union shares began trading on the New York Stock Exchange Oct. 4.