Euronet Worldwide, Inc. :EEFT-US: Earnings Analysis: Q2, 2017 By the Numbers : August 1, 2017

Euronet Worldwide, Inc. reports financial results for the quarter ended June 30, 2017.

We analyze the earnings along side the following peers of Euronet Worldwide, Inc. – Blackhawk Network Holdings, Inc., eBay Inc. and Visa Inc. Class A (HAWK-US, EBAY-US and V-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 536.56 million, Net Earnings of USD 51.37 million.
  • Gross margins widened from 21.34% to 21.88% compared to the same period last year, operating (EBITDA) margins now 17.18% from 16.53%.
  • Year-on-year change in operating cash flow of -12.30% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings declined although operating margins improved from 12.44% to 12.86%.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2017-06-30 2017-03-31 2016-12-31 2016-09-30 2016-06-30
Relevant Numbers (Quarterly)
Revenues (mil) 536.56 473.38 519.8 524.03 476.87
Revenue Growth (%YOY) 12.52 8.1 10.45 8.86 12.16
Earnings (mil) 51.37 28.12 28.9 60.73 55.68
Earnings Growth (%YOY) -7.74 -3.34 -13.73 93.82 107.68
Net Margin (%) 9.57 5.94 5.56 11.59 11.68
EPS 0.93 0.51 0.54 1.11 1.04
Return on Equity (%) 5.09 3.03 3.16 6.83 6.66
Return on Assets (%) 7.29 4.24 4.49 10 9.57

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Market Share Versus Profits

Revenues History
Earnings History

EEFT-US‘s change in revenue this period compared to the same period last year of 12.52% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that EEFT-US is holding onto its market share. Also, for comparison purposes, revenues changed by 13.35% and earnings by 82.64% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

The company’s year-on-year earnings decline did not come as a result of a contraction in gross margins or because of any cost control issues. Both gross margins and operating margins (EBITDA) margins actually improved over this time frame. Gross margins went from 21.34% to 21.88%, while operating margins improved from 16.53% to 17.18% over this period. For comparison, gross margins were 17.59% and EBITDA margins 13.29% in the immediate last period.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Commodity; Low Cost, Commodity; High Cost, Differentiated; High Cost

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

EEFT-US‘s gross margin improvement has not produced any big difference in its working capital. Working capital days are currently 92.59, compared to last year’s level of 65.61 days. This leads Capital Cube to conclude that the improvements in gross margins are likely from operating decisions and not trade-offs with the balance sheet.

Gross Margin Versus Working Capital Days

Quadrant label definitions. Hover to know more

Customer Financed, Cash Starved, Supplier Financed, Cash Rich

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

EEFT-US‘s change in operating cash flow of -12.30% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings

Margins

Despite an overall improvement in operating (EBIT) margins, the company’s earnings fell. EBIT margins went from 12.44% to 12.86%. The decline in earnings appears to be largely because of one-time items. Pretax margins declined from 14.84% to 13.03%.

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

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Company Profile

Euronet Worldwide, Inc. engages in the provision of electronic payment and transaction processing solutions for financial institutions, retailers, service providers, and individual consumers. It operates through the following segments: electronic financial transaction processing, epay, and money transfer. The electronic financial transaction processing segment involves in providing electronic payment solutions such as automated teller machine (ATM) cash withdrawal and deposit services, ATM network participation, outsourced ATM and management solutions. The epay segment offers prepaid mobile airtime top-up services, prepaid and payment products on network terminals. The money transfer segment refers to money transfer services under the Ria and HiFX. The company was founded by Daniel R. Henry and Michael J. Brown in 1994 and is headquartered in Leawood, KS.

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