UPDATE 1-Brazil's Cielo misses profit estimates as expenses jump
(Adds background, details on performance starting from paragraph 3)
SAO PAULO, July 29 (Reuters) - Cielo SA, Brazil's largest card payment processor, missed second-quarter profit estimates as rising general, administrative and financial expenses offset robust volume growth and revenue from prepayments.
Net income at the Barueri, Brazil-based company fell to 797 million reais ($357.3 million) in the quarter, down 1.1 percent from the prior three months, according to a securities filing late on Tuesday. A Reuters poll of seven analysts estimated average profit of 807 million reais for the quarter.
Results from the past quarter may mark the start of a new cycle of headwinds for Cielo, whose stock has been a favorite among financial industry analysts for the past two years. Revenue, operational earnings and proceeds from prepayments fell short of expectations, while general and administrative expenses topped forecasts by a large margin.
Among those potential headwinds, regulators could end the remaining exclusivity agreements in the sector, dampening future revenue sources. Concern is growing among analysts that expenses per transaction will keep rising going forward, and that competition from the payment processors controlled by lenders Itaú Unibanco Holding SA and Banco Santander Brasil SA will intensify next year.
Management will discuss second-quarter results with investors at a conference call on Wednesday.
On a quarter-on-quarter basis, operational performance was the weakest in a year, although profit and earnings before interest, tax, depreciation and amortization - a gauge of operational profitability known as EBITDA - posted healthy increases, the filing said.
Net revenue rose 1.3 percent to 1.841 billion reais, compared with the poll's forecast of an 8 percent jump, with transaction volumes for debit and credit card payments as well as more equipment rentals propelling scant revenue gains.
A 6.7 percent climb in operational costs stemmed from a jump in transaction volumes and more information technology investments, the filing said. Sales, general and administrative expenses jumped 10 percent from the first quarter, totalling 285.2 million reais.
Thus, rising costs and expenses drove EBITDA down 4.6 percent down to 956 million reais in the quarter. Analysts in the poll expects EBITDA of 991 million in the quarter ended in June. Prepayment of receivables propped up non-operating income, after posting a 14 percent jump on a sequential basis, the filing added.
EBITDA fell to an average 51.9 percent of net revenue in the quarter, from 55.1 percent in the previous three months and 53.4 percent in the poll.
($1 = 2.23 Brazilian reais) (Reporting by Guillermo Parra-Bernal and Aluísio Alve; Editing by Lisa Shumaker)