By Guillermo Parra-Bernal and Aluísio Alves
SAO PAULO Jan 28 Cielo SA, Brazil's
largest card payment processor, missed profit estimates in the
fourth quarter as a seasonal surge in marketing and sales
expenses offset the impact of rising transaction volumes and
higher financial income.
Barueri, Brazil-based Cielo said in a Wednesday regulatory
filing that net income taking into account minority interests
totaled 722.8 million reais ($297 million) in the quarter. The
number, which is unaudited, came below an average profit
estimate of 737 million reais in a Thomson Reuters poll of five
Profit rose 4.5 percent from the third quarter, and 16.2
percent from the same period of 2012, the filing said. Cielo
agreed to pay shareholders a total 960 million reais in
dividends, the filing added.
The results underscore the challenges facing Chief Executive
Officer Rômulo Dias. He is contending with increased competition
from incumbent rivals and newcomers, accounting changes that
will make earnings-reporting more volatile, and eroding
operational profit margins.
As a result of the higher expenses, earnings before
interest, tax, depreciation and amortization fell below 50
percent of net revenue for the first time since the company went
public. The indicator, a gauge of operational profitability
known as EBITDA, posted a margin of 49.2 percent in the fourth
quarter, compared with 53.5 percent in the prior three months.
EBITDA came in at 912.7 million reais, below the poll's 954
million reais estimate. The poll predicted an EBITDA margin of
51.8 percent for the fourth quarter.
Net revenue rose 6.6 percent on a quarterly basis to 1.85
billion reais, below the poll's estimate of 1.88 billion reais.
The revenue gains were fueled by a 17 percent jump in
transaction volumes for debit and credit cards. Revenue from
merchant acquiring receivables rose 13 percent, the filing said.
Marketing and administrative expenses soared because of
seasonal reasons, as predicted by the analysts in the poll. In
the quarter, Cielo began booking fee revenue from
interest-rate-free installments at the moment of the purchase,
an accounting change that may make earnings more volatile going
Sales, general and administrative expenses totaled 313.5
million reais in the quarter, a jump of 25.4 percent from the
third quarter of last year, the filing said. Sales and marketing
expenses led the rise with a 127 percent jump sequentially,
while payroll costs rose 6.1 percent, Cielo said.
Management and investors will discuss results early on
Wednesday at a conference call that might focus on competition
issues, pricing and volume trends, and the impact of the soccer
World Cup in June on revenue, according tot he poll.
Analysts said that Cielo might have lost customers to Itaú
Unibanco Holding SA's Rede unit in the quarter.