With a Grip on Costs, TSYS Continues Its Post-BofA Recovery

Bolstered by cost controls and its growing international business, payment processor Total System Services Inc. (TSYS) on Monday reported profits rose nearly 27% on a revenue increase of not quite 4%. TSYS also said operating margins are up more than 3 percentage points this year to 25.6%. Columbus, Ga.-based TSYS lost tens of millions of accounts when Bank of America Corp., which in early 2006 bought MBNA Corp., a monoline card issuer with its own processing platform, took its consumer credit card processing business in-house (Digital Transactions News, April 19, 2006). Another big blow came when JPMorgan Chase & Co. did likewise. That second loss, however, was mitigated because Chase built its new in-house platform on licensed TSYS software that will provide a profitable revenue stream going forward. Late Monday TSYS reported net income of $68.8 million, up 26.7% from $54.3 million in 2006's third quarter even though revenues, including reimbursable expenses, rose only 3.6% to $457.6 million from $441.8 million in the year-earlier period. The international segment, while accounting for not quite 18% of revenues, saw its operating income jump 58.2% to $12.6 million. In contrast, the domestic support-services unit had an increase in operating income of 23.1% to $59.9 million and the merchant-processing segment's equivalent figure grew 19.9% to $18.8 million. Merchant-processing revenues actually fell 1.8% to $58.6 million while domestic cardholder and related processing revenues grew only 0.3% to $243.4 million. But expense controls coupled with the growth in the high-margin international segment saved the day. Total third-quarter operating expenses declined 0.9% to $366.3 million from $370 million a year earlier. For the year, TSYS is projecting profits will be up 20% to 22% over 2006 if BofA's $68.9 million early-termination payment to TSYS and $6 million in related costs are excluded, even though revenues are projected to be down 2% to 3%. Synovus Financial Corp., which owns nearly 81% of TSYS, has indicated it might sell its interest in the processor (Digital Transactions News, July 24). Synovus is scheduled to report third-quarter earnings Thursday. In other earnings news: ? American Express Co. garnered $3.66 billion in third-quarter discount revenue, up 12% from $3.26 billion the 2006 period. The New York City-based travel-and-entertainment card giant reported Monday that it posted $162.5 billion in worldwide charge volume, up 16% from $140.3 billion in 2006's third quarter. U.S. charge volume rose 13% to $115.2 billion while international volume jumped 23% to $47.3 billion. AmEx says its worldwide average discount rate held steady at 2.57%. In all, AmEx reported $1.1 billion in income from continuing operations, up 15% from $934 million in the 2006 period. ? Wire-transfer leader The Western Union Co. today reported third-quarter revenues of $1.26 billion, up 10% from $1.14 billion a year ago. Net income, partly affected by costs stemming from Western Union's spin-off last year from First Data Corp., fell 16% to $216.3 million from $258.1 million in the 2006 period.