Commercial fleet payments solution provider Fleetcor once again beat Wall Street expectations when it reported its 2018 third quarter earnings data Tuesday (Oct. 30) evening, coinciding with the announcement of a new contactless payment partnership with McDonald's in Brazil.
Total revenues were up 7 percent year over year to $619.6 million, which included a $28 million impact from the adoption of the new revenue recognition standards, ASC 606. Net income declined year over year by 22 percent to $157.7 million in Q3, with the drop attributed to the income jump from Fleetcor's Q3 2017 sale of NexTraq.
"Our third quarter revenues and profits once again finished above our expectations," said Fleetcor Chairman and CEO Ron Clarke in a statement.
During the firm's earnings call, Clarke pointed to initiatives across Fleetcor's four core business units — fuel, corporate payments, tolls and lodging — via collaborations, mergers and acquisitions (M&A) to drive incremental growth in each area. Its fuel segment saw a 5 percent year-over-year increase in revenues, with toll operations growing by 21 percent in the quarter and lodging rising by 17 percent for Q3. Corporate payment operations emerged as a particularly bright spot during the quarter, seeing a 28 percent year-over-year increase in organic growth, hitting $106 million in revenues for the quarter (up from $83 million the previous year).
Clarke attributed the performance to Fleetcor's acquisition of commercial payments firm Cambridge Global Payments last year and its collaboration with AvidXchange to roll out ASAP — an automated accounts payable (AP) solution under Fleetcor's Comdata operations — last June.
"We think this initiative will be incremental to our core corporate payments business because it targets a different and smaller customer," Clarke said. "I hope the message is clear. We're working on a number of new incremental growth initiatives in each of our four businesses."
Looking ahead, Fleetcor said it is focused on adding new customers and increasing spend for existing customers to continue growth. Clarke added that the company has several acquisitions in the pipeline for the coming months, while it plans to commence a buy-back shortly as well, though it emphasized the focus on incremental growth as it targets smaller clients for its commercial payment operations.
"We're going to keep getting behind the mid-sized accounts we're on, and we're going to find a way internally, or through [M&A] deals, to build a bigger position in the small market," he said.
Focus On Brazil
Fleetcor announced its Q3 earnings the same day it revealed a collaboration with McDonald's to allow consumer users of its Sem Parar toll collection solution — which already supports payments at gas stations and parking lots — to use the tool at the McDonald's drive-through.
Sem Parar, Brazil's largest toll road payments technology firm, was acquired by Fleetcor in 2016 for $1.12 billion, reports in Reuters said Tuesday. The solution links drivers to a Sem Parar tag connected to the vehicle, which uses radio frequency identification to facilitate payment and invoice the user. Fleetcor said that 100 McDonald's drive-through locations will offer the contactless Sem Parar payment option for customers by the end of January.
"It showcases them as innovative in payments," Clarke said of McDonald's collaborating with Fleetcor. He added that the partnership allows "McDonald's to show, 'We're innovative — we've got the easiest ways to pay versus other fast food guys.'"
Brazil is a key market for Fleetcor, accounting for 17 percent of the company's revenue ($203 million) for the first half of 2018, Reuters noted. Clarke noted Brazil's strengthening economy in driving Fleetcor's performance as the company expands its presence in the market beyond fuel payments — with the McDonald's initiative demonstrative of that effort.
The one caveat: FX volatility and the declining strength of the Brazilian real currency pushed a $27 million negative impact, with a negative net impact of $10 million on Q3 revenues compared to the third quarter of 2017, according to Fleetcor CFO Eric Dey.