Why Fleetcor Will Continue to Grow

Dusan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Fleetcor Technologies (NYSE: FLT)  continues to grow, and is benefiting from the global shift away from paying cash. The company made its shareholders happy again, delivering earnings and revenue above analyst expectations last week. Fleetcor provides payment services including fleet cards and other specialized payment services for businesses around the world. New deals and geographic expansion are translating into robust earnings and revenue growth. 

Earnings highlights

Fleetcor reported second-quarter earnings of $1.00, up 37% when compared to the same quarter last year, and ahead of analyst estimates of $0.95. Revenue grew 28% to $221 million. Management raised full year net revenue guidance to $825 million to $835 million, up from the previous guidance range of $810 million to $820 milion. EPS guidance was raised to $3.82 to $3.87 range, up from previous range of $3.70 to $3.80.

As I said in my previous article about Fleetcor, the company is well known for underpromising and overdelivering. As a reminder, Fleetcor’s initial 2013 guidance was $3.61 to $3.79 range for earnings per share, and revenue between $790 million to $810 million. This outperformance has happened in almost all quarterly reports since the company went public.

Fleetcor's results are more impressive when you account for the tough macroeconomic environment. Exchange rates were unfavorable in Fleetcor’s two major markets, the U.K. and Brazil. The management estimated that these macroeconomic headwinds negatively impacted revenues by approximately $2 million to $3 million.

New deals are fueling growth

Three major developments will drive Fleetcor's growth in the future. First is the full outsourcing deal with Husky Oil in Canada. The program will start later this year, and includes outsourcing services, such as transaction processing and marketing and sales. This deal is Fleetcor’s first large-scale effort in Canada, and should create interest with additional clients there, and Canada might become another big growth driver for the company.

The second development is the long-term agreement with Visa Europe. This partnership will enable Fleetcor to utilize its fuel card processing system together with Visa Europe’s technology to deliver new fuel card solutions across Visa Europe territories. Management believes that some major oil companies will be quite interested in these chip solutions, since they provide a intelligent and modern solutions to their clients.

The third is the extending of Fleetcor's relationship with Shell (NYSE: RDS-A). With this extended relationship, Fleetcor will provide Shell with a new commercial card in the U.S.; there will be more details when Shell describes its program and plans in September.

Strong industry trends

Although Fleetcor specializes in managing and processing commercial fuel cards, it is largely benefiting from global trends of rising non-cash payments. Visa (NYSE: V) and Mastercard (NYSE: MA) are clear leaders in the field, and are the driving force of the industry group’s movement. However, I argued in my previous article that Fleetcor is a better investment than Visa and Mastercard, and the year-to-date performance is supporting the case so far.

<img alt="" src="http://media.ycharts.com/charts/deffeefcf6c1fb8403f6c5ee4d84f5fe.png" />

FLT data by YCharts

Fleetcor’s earnings and revenue growth far exceeds the growth of Visa and Mastercard, and its share price has risen more than 80%, compared to Mastercard’s 30% and Visa’s 20% rise this year.

These growth trends are expected to persist in the future, as a part of the global transition to more efficient forms of payments, and all three companies will surely continue to grow for years to come. And it is important to say that Fleetcor is not competing with Visa and Mastercard. They are partners across the globe in the markets where Fleetcor is present, and they certainly share the fate of these strong secular growth trends.

<img alt="" src="http://g.fool.com/editorial/images/63218/flt-cagr-growth_large.png" />

Fleetcor has delivered strong and consistent earnings and revenue growth. Source: Company presentation

Bottom line

Fleetcor is an excellent choice if you want to participate in the secular growth trends of non-cash payments. Fleetcor is delivering robust growth rates, and raising expectations along the way. The company is expanding into new geographies and making deals with major oil corporations in its current and potential new countries. There is certainly much more room for Fleetcor to grow.


Dusan Jovanic owns shares of FLEETCOR TECHNOLOGIES INC. The Motley Fool recommends MasterCard and Visa. The Motley Fool owns shares of MasterCard. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

blog comments powered by Disqus