Image source: Euronet Worldwide, Inc.
Secure electronic financial transactions provider Euronet Worldwide, Inc. (EEFT 0.52%) alleviated any investor worry that revenue and profit growth might ebb when it released second quarter 2016 results before the markets opened Tuesday. During the quarter, the company continued to expand its ATM network, as well as money transfer and forex services, in response to consumer demand for cash withdrawals, cross-border remittances, and currency-exchange transactions.
Let's take a bird's-eye view of the earnings report, and then delve into more detail to understand what propelled the company's well-received Q1 filing:
Euronet: The raw numbers
| Metric | Q2 2016 Actual | Q2 2015 Actual | Growth (YOY) |
|---|---|---|---|
| Revenue | $477 million | $425 million | 12.2% |
| Net income attributable to Euronet Worldwide | $56 million | $27 million | 107% |
| Diluted EPS | $1.04 | $0.50 | 108% |
Data source: Euronet Worldwide, Inc. 8K-filing, July 26, 2016.
What happened with Euronet this quarter?
- The company cited ATM network expansion in its EFT processing segment, and double-digit organic growth in its money transfer segment, as significant factors behind its 12.2% revenue increase versus Q2 2015.
- Diluted earnings per share of $1.04 include a one-time gain of $0.29, resulting from the company's sale of its shares in Visa Europe to Visa, Inc. (V +8.13%).
- Adjusted cash earnings per share of $0.97 beat management's own projected target of $0.90 and exceeded last year's comparable adjusted EPS of $0.78 by 24%.
- EFT processing, the company's smallest but most profitable segment, recorded revenue of $115 million and operating income of $28 million, which translates to growth of 24% and 27%, respectively. At quarter's end, EFT counted 25,912 deployed ATMs in its network, an expansion of 18% year over year.
- Euronet's epay segment, which provides mobile airtime services, as well as gift card and digital content subscription services, lagged other segments again. Revenue declined 4% to $161 million, and operating income slipped 1% to $16 million.
- Money Transfer continues to win laurels as Euronet's most vigorous value driver as of late. Revenue jumped 22% to $202 million, and operating income surged 46% to $26 million. The segment has seen consistent transaction volume growth from subsidiary RIA's contract to supply remittance services to Wal-Mart's (WMT +0.33%) customers. Money Transfer's global network reached 316,000 locations spread over 150 countries at quarter's end, a 16% increase over 2015.
- As I mentioned in my earnings preview, Euronet's management had expressed uncertainty over the effects of the U.K.'s potential Brexit earlier in the year. Now that the British have indeed set an exit from the EU into motion, management discussed potential effects on Euronet's business in Tuesday's release. The company quantified its revenue exposure in the U.K. at 7%, and estimated operating income from U.K. based earnings at just 2%.
- In addition, it turns out that the wide currency fluctuations that beset the British pound at quarter's end drove positive trading volume for the company's forex subsidiaries, as you'll see below. This, coupled with management's overall sanguine risk assessment undoubtedly contributed to the roughly 7.5% gain that shares enjoyed during Tuesday's trading session.
What management had to say
Euronet's management clearly felt positive about the quarter. Following are CEO Michael Brown's comments issued with the earnings release, which provide additional color on the preceding points:
Our second-quarter results exceeded our expectations, delivering 24% growth in adjusted cash EPS. ... Our 14th consecutive quarter of double-digit cash EPS growth resulted from continued strength in our EFT and Money Transfer segments. EFT continued to benefit from ATM network expansion, while Money Transfer delivered another quarter of double-digit organic growth, including Walmart-2-Walmart, as well as from the June 2015 acquisition of IME and a stronger than normal trade pattern in the HiFX business as a result of currency volatility stemming from the UK's June 2016 vote to exit the European Union. Epay results were generally consistent with the prior year as a result of continued growth in non-mobile sales which largely offset certain mobile declines.
Moving forward
Euronet has improved revenue and earnings in recent quarters by a fairly straightforward formula: Expand capacity for transactions in each business segment while consumer transaction demand continues to blossom. Executives indicated today that this underlying business proposition should continue into the next quarter. While the company doesn't issue detailed guidance, management pegged Q3 2016's adjusted cash earnings per share at $1.34. Hitting this level of adjusted EPS would deliver a 29% earnings boost for shareholders, which further explains the sentiment that spurred shares significantly higher on Tuesday.
