From the United Kingdom to Russia and down to Mexico and
Brazil, Norcross, Ga.-basedFleetCor Technologies (
) is on the move.
One of the top fuel-card companies in the U.S. for commercial
vehicle fleets, it's been buying up local fuel-card networks
outside the country to fuel its own growth.
Buyout targets tend to have "less sophisticated, underinvested
and underutilized" networks, said Wayne Johnson, an analyst with
Most of the company's revenue comes from its payment network
and card processing services for commercial and government
fleets, tied to drivers' fuel purchases. Vehicles it serves tend
to travel "short hauls" within 100 miles of loading spots,
FleetCor charges a monthly fee to fleets using the fuel cards
and a usage fee to gas stations that accept the cards. FleetCor's
electronic network connects the two sides.
After an acquisition, FleetCor turns up the throttle by
transferring the new accounts to its platform "and in doing so it
can introduce new services and sometimes raise pricing," Johnson
Six to 12 months down the road, the acquisitions typically
drive per-share earnings higher than analysts' expectations, he
Case in point: FleetCor's third-quarter results, released Oct.
30 after the market close. Earnings jumped 30% from a year
earlier to $1.08, 10 cents above Wall Street's consensus. Even
excluding a tax benefit of 5 cents, it still beat views by 7
Revenue grew 20% to $225.2 million, also above views.
"It was an exceptional quarter," said Evercore Partners
analyst David Togut. Investors must have thought so. Shares
jumped nearly 8% the next day to a new high.
It didn't hurt that the company announced it made two new
acquisitions in October, expanding products and services. Togut
says the buys will "set the stage for strong earnings growth in
At the same time, management raised guidance for 2013 to $4.02
per share at the midpoint. The team started the year forecasting
$3.65 at the midpoint and kept raising guidance.
One of the new buys, Atlanta-based NexTraq, provides fleet
operators with real-time telematics vehicle tracking and fuel
monitoring services. The other, Epyx in the U.K., uses an
Internet-based system to link leasing and commercial fleet
clients to 9,000 service garages there, earning a fee each time
the system is used to support a service transaction.
"We've been looking for ideas to extend beyond fleet fueling
into fleet maintenance," FleetCor CEO Ronald Clarke said in the
earnings conference call.
FleetCor also said it closed on one of two Brazilian
acquisition deals previously announced, that of DB Trans, a
payment company for truckers. The other, for card and voucher
firm VB Servicos, closed in August.
Togut figures the latest Brazilian acquisitions will add 20
cents to FleetCor's earnings in 2014.
"FleetCor will almost certainly be the fastest earnings grower
in my payments' coverage over the next few years," Togut said. He
covers 24 payments stocks, includingVisa (
) and FleetCor's closest rival, Maine-basedWEX (
), formerly called Wright Express.
WEX, which offers fleet and corporate payment products, also
beat earnings and revenue views in the third quarter.
"WEX is more of a U.S. company," Togut said, though he added
that it's been stepping up international expansion.
FleetCor has acquired nearly 60 companies since 2002.
Third-quarter results got a lift from several of them, including
deals made earlier this year in Australia, New Zealand and
In addition, it saw continued growth from a North American
workforce lodging firm acquired in 2009, Corporate Lodging
Consultants. CLC gives truck drivers discounted room rates.
International revenue jumped nearly 30% from last year, "led
by our U.K. business," Clarke said, for a total of $109.9
million. Revenue in North America grew 13.6% to $115.3
Driving Growth Abroad
International is close to accounting for 50% of the firm's
revenue, up from about 30% a few years ago.
Most of the company's acquisitions in recent years have
occurred overseas. One of the largest was the $312 million
purchase in late 2011 of AllStar Business Solutions, the U.K.'s
leading fuel-card provider.
Earlier that year a Mexico City-based prepaid fuel and food
voucher business marked the company's entry into Latin
Hopping aboard FleetCor's bandwagon in 2012 were a Russian
fuel-card company and a fuel payment processor in Brazil. The
latter targets trucks, ships, mining equipment and railroads; and
links fleet operators, banks and oil companies.
"It's a fixed-cost business so the company with the greatest
amount of volume wins," Johnson said. "FleetCor gets high margins
and earnings acceleration from the layering on of new
acquisitions on its existing infrastructure."
In addition to its core business, FleetCor has forged several
outsourcing deals with oil companies such asChevron (CVX),BP (BP)
and Arco for managing their corporate cards in the U.S.
Similar deals with oil companies in Europe could provide new
growth opportunities, analysts say. But that could take several
years given Europe's complexities, wrote Morgan Stanley analysts
in a recent research note.
One of the first major oil-company outsourcing deals in Europe
was EuroShell's 2011 contract with FleetCor to process fuel-card
transactions in 35 countries, Morgan Stanley noted. But platform
conversions have been slow due to "extensive customization
About 70% of European fleet volume flows through cards issued
by oil companies and the bulk of those are still managed
in-house, Morgan Stanley said.
Meanwhile, FleetCor's growing presence in emerging markets is
seen as a positive since card markets there are at earlier stages
of development than in the U.S. and therefore will grow at a
But FleetCor's business in the U.K. market is hardly a
laggard. Togut notes that third-quarter revenue jumped 35% from a
In a new partnership with Visa Europe, FleetCor will roll out
highly secure EMV cards in 2014 in the U.K., seen as a revenue
driver that year.
Acquisition opportunities are still plentiful in the
fragmented U.S. market. But FleetCor, says Johnson, "made the
choice that international is where it gets more bang for the