Has the Bleeding Stopped at Heartland?

Heartland's stock price have had a bad time since the breach, but what about the core business?

In q3 2010, Heartland missed earnings by a mile. Analysts were looking for $0.30 earnings per share, and Heartland came in with 0.20. Worse still Heartland competitors are growing and taking market share.

But let's step back a moment, drain some emotion and look at the data, specifically the Income statement

	2009	2008	2007	2006
Revenue	$1,652	1,544	1,313	1,097

What we see in terms of top line revenue is a ~$1 billion revenue business in 2006 (pre-crisis & pre-breach), but that revenue has grown 66% to $1.6 billion through both the crisis and the breach. Of course, there are many companies that would be ecstatic with that kind of growth, but top line growth is one thing and net profits are another. What happened to net profits margins? 

	2009	2008	2007	2006
Net profit	-3.1%	2.7	2.7	2.6

Well, we can see a couple of things, first off payment processing is a not a high profit margin business (for comparison sake, Coca Cola's margins are north of 20%). In the years leading up to the breach, the profit margins were razor thin. But the volume was high and growing and the margins were stable. Having to pay the massive fine in 2009 destroyed any chance at profitability, but what has happened since then?

Back to the top line Revenue, we are three quarters since the last Annual Report which showed $1.6b in top line revenue. So if we take a Trailing Twelve months view 3Q from this year and one from last year, we see Revenues of $1.8b. This means another year of top line growth looks likely.

 

 

	Revenue	Net Profit margin
9-30-10	$499m	1.51%
6-30-10	475m	1.3
3-31-10	411m	3.5
12-31-09	420m	-2.3
TTM	$1,805b	1.0%

What we can see so far is that earnings continue to grow, but at a slower rate. Margins have not recovered, but they are getting back to reasonably close to pre-breach. We should have the full year of data next month to see how the rest of 2010 turned out for Heartland. If that quarter comes in similar to the previous three we might be looking at a much more stable future for Heartland.

Comments

[riskpundit]

There is no doubt that Heartland is under-performing as a company. And as a security professional, I would love to believe the cause is the breach. But the breach may just be a correlated event.

I would like to see a deeper analysis.

[gunnar]

@riskpundit-
There is no doubt that Heartland profits and margins have suffered in the short term, yet there is also no doubt that almost any business would be over the moon happy with 60% top line revenue growth.

For companies, Risk is the permanent impairment of capital, Heartland shareholders have not had a cheery 2009-10, but the firm is still there and its growing earnings. We might be looking at a very different story in 2012