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Can Fleet Card Activity Gauge U.S. Economic Health?

As the economy goes, so go corporate fleet programs? That might not be entirely true, but an analyst on June 11 inquired about whether a top executive at WEX could gauge any modest improvement in the U.S. economy based on what the fleet card provider had been experiencing.

Speaking at the William Blair & Co. Growth Stock Conference, Steve Elder, WEX chief financial officer and senior vice president, noted the company does a fleet comparison that essentially provides a picture of the economy, at least for particular sectors. The evaluation involves an examination of “same store sales,” Elder said.

WEX doesn’t operate stores, but it looks at how many gallons of fuel a particular fleet buys during business days in a given quarter versus the same period a year earlier. “What it has shown, really pretty consistently, I would say, over the last, say, 18 to 24 months, is about a 1 percent to 2 percent degradation each quarter when you compare back to the prior year,” he said. “It hasn’t really waivered that much. I would say plus or minus half a percent typically.”

By comparison, the rate was minus-10 percent in 2008, “so we saw some clear impacts there,” Elder said.

Various factors the company also takes into account affecting fuel sales include better vehicle fuel efficiency, and improved routes being taken through telematics. And while WEX parses such factors out, the reliance on the data has been pretty consistent, Elder said.

Where the variations become obvious is when comparing Standard Industrial Classification (SIC) codes, which classify industries by a four-digit code. “As an example, we saw the mining sector – which would include all the oil and gas folks, the frackers – we saw huge growth, double digit, same store sales for them for a good long period of time,” he said. “It’s kind of leveled out now – they’ve kind of flattened out. I’d say that’s a relatively small part of the business, but it is an insight there.”

The biggest concentrations where WEX operates are in the construction and trades areas, Elder noted. “They were doing relatively well for a good period of time. Today, currently, I’d say they’re pretty flat,” he said.

Another segment is business services, where the economy impact has been pretty consistent with the overall marketplace. However geographically it has flipped around over time, so right now the Southeast is doing relatively well, whereas most of the other regions, not so much, Elder said.

During the call, Elder noted that three-fourths of WEX’s business stems from its fleet card program, and about two-thirds of the company revenue comes from payment processing, or the discount fees it receives from oil merchants when fleets use its cards to pay for fuel and other allowable purchases, he said.

“About two-thirds of our revenue comes from people we really don’t consider our customers,” Elder said.

In terms of company focus, WEX’s concentration is on the fleet and travel segments, though it is evaluating growth opportunities in health care and the employee space (payroll cards), Elder said. “We run a very disciplined strategic program, and we’re focused on accretive deals and attractive businesses that can either create or enhance scale in our existing businesses or add product differentiation or functionality that can improve our offerings in the businesses we’re in,” he said.

 

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