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ATMs Dispense Cash for Euronet Worldwide in the Second Quarter

By Asit Sharma – Updated Jul 27, 2017 at 9:44PM

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The transaction processing and remittances giant raked in growth from its ATM network over the last three months.

Transactions-specialist Euronet Worldwide (EEFT -0.89%) reported double-digit top-line growth in the second quarter of 2017 when it filed earnings on July 25th. We'll delve into highlights of the quarter after first reviewing key earnings numbers directly below:

Euronet earnings: The raw numbers

Metric Q2 2017 Q2 2016 Year-Over-Year Growth
Revenue $536.6 million $476.9 million 12.5%
Net income $51.4 million $55.7 million (7.7%)
Diluted earnings per share $0.93 $1.04 (10.6%)

Data source: Euronet Worldwide.

What happened with Euronet this quarter?

  • The company's nearly 13% rise in revenue was mostly attributable to performance in its EFT Processing segment, which reported a 36% increase in revenue, to $156.0 million. 
  • An ATM count of 37,383 at quarter-end partially explains this revenue leap. Since the same quarter last year, the company has increased its ATM installations by 44%. Euronet also cited a 26% rise in transactions, primarily in Europe and India. These are two geographical areas in which the company has invested quite heavily in recent years. According to management, results in the EFT segment would have been even better if not for issues related to India's ongoing rupee-monetization initiative.
  • The epay segment was able to eke out a revenue increase of 2%, to $164 million. As the market for mobile prepaid services has cooled off, epay has branched out into non-mobile services, such as the selling of content subscriptions at retail stores in developing nations. Reporting a firmer top line, even at a near-flat level, is a credible result for epay as it works to regain its footing.
  • Euronet's money-transfer segment achieved a decent 8% revenue advance, to $217.1 million. The performance was mostly attributable to the Ria subsidiary, which provides Wal-Mart customers with money-remittance services through its "Ria Money Transfer" brand. 
  • Euronet posted operating income of $66.7 million, which exceeded the comparable prior-year quarter by approximately $7 million. However, the company recorded $20 million of one-time gains in the second quarter of 2016 when it sold its share of Visa Europe to Visa Inc. This caused a comparable drop in net income and earnings per share in the current quarter.
  • Net results might have declined even further, but the company enjoyed a rare currency-translation swing in its favor in the amount of $11.1 million during the quarter, due to U.S. dollar weakness.
Hand inserting card into brightly colored orange ATM machine.

Image source: Getty Images.

What management had to say

The current quarter was notable for the surge in EFT Processing revenue. During the company's conference call with analysts on July 25th, CFO Rick Weller explained in detail how the company's strategy goes beyond adding units across promising markets like Europe, in brute force:

...Sure, we get more machines out there. But as we continue to layer more of those products in there, we've talked about things like having cardless-based ATM cash withdrawals, depository transactions, lottery or promotional payout type of transactions. And these are all very high-value, rich margin type of transactions. And it just makes our ATMs more attractive to the banks and to other parties as the place to go. So yes, it is units, but it's getting more and more and more product on there. And we're capable -- we can do that because we run the ATMs with our own software, both in our back office as well as at the ATM. So it's a combination of getting the machines out there and getting the products on the machine.

Looking forward

Euronet doesn't provide detailed earnings guidance each quarter. However, the company does publish an adjusted earnings per share (EPS) estimate, which is expected for the third quarter to land at approximately $1.60. This reflects management's confidence in current-year strength, as hitting this target would represent an adjusted EPS improvement of almost 19%.

Asit Sharma has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Visa. The Motley Fool recommends Euronet Worldwide. The Motley Fool has a disclosure policy.

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