(Adds details, context, comments from CEO Dias, share
By Guillermo Parra-Bernal
SAO PAULO, July 30 Cielo SA, Brazil's
largest card payment processor, expects still-robust volume
growth and technology investments to help bring down costs per
transaction next year, following a recent spike, executives said
But shares of Cielo fell 2.6 percent to 43.10 reais, their
biggest intraday tumble in more than two weeks, after its CEO
did not lower the unit cost estimate for this year.
On a conference call to discuss second-quarter results,
Chief Executive Officer Rômulo Dias said Cielo still expected
unit transaction costs of 0.75 reais to 0.78 reais this year,
but he expects them to end next year below that range.
"That's doable, that the actual number next year ends up
slightly below our soft guidance for this year," he said.
Cielo's struggle with a surge in costs and expenses was the
main reason the Barueri, Brazil, company missed second-quarter
profit estimates on Tuesday. It is investing heavily in
information technology, coping with rising wages and starting
new projects to preserve its leadership in Brazil's
$300-billion-a-year card industry.
Credit Suisse Securities analyst Victor Schabbel said
concerns could arise if Cielo repeats the so-called soft
guidance for unit transaction costs. The indicator rose to 0.73
reais in the second quarter from about 0.71 reais in the
previous three months.
Schabbel said he expected costs per transaction to end this
year at 0.72 reais to 0.74 reais.
Costs per transaction climbed 7.5 percent on a quarterly
basis and 14.5 percent on an annual basis as maintenance and
operating costs of the point-of-sale terminal base jumped.
Sales, general and administrative expenses rose 27 percent on an
annual basis, offsetting a 14 percent jump in net revenue.
"We reckon cost cutting could be a key driver of earnings
expansion going forward," said analyst Eduardo Rosman of Grupo
BTG Pactual in São Paulo.
Net income at Cielo fell 1.1 percent to 797 million reais
($357 million) in the quarter from the prior three months. Seven
analysts polled by Reuters on average had expected 807 million
The results 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 the potential challenges, 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 and that competition from the
payment processors controlled by lenders Itaú Unibanco Holding
SA and Banco Santander Brasil SA will
intensify next year.
(Reporting by Guillermo Parra-Bernal; Editing by Jeffrey Benkoe
and Lisa Von Ahn)