Blackhawk Network Holdings Q4 Earnings Report: What to Expect?

The Q4 2016earnings report for small cap prepaid payment network and card stock Blackhawk Network Holdings Inc (NASDAQ: HAWK) is scheduled forafter the marketcloses on Wednesday (February 15th). In the past, Blackhawk Network Holdingshas citedtheregulatory-mandated introduction of EMV chips for card issuers and store processors as a hazard for its current business model.

A technical chart for Blackhawk Network Holdings shows shares back up above a key support level again:

Small cap Blackhawk Network Holdingshas largely moved sidewaysafter its IPO spinoff from Safeway (NYSE: SWY) whilepotential peer of Green Dot Corporation (NYSE: GDOT) has underperformed and Euronet Worldwide, Inc (NASDAQ: EEFT) has outperformed:

Back in October, Blackhawk Network Holdings reported the following third quarter results:

$ in millions except per share amounts Q316 Q315 % Change
Operating Revenues $ 361.6 $ 352.7 3 %
Net Income (Loss) $ (5.1 ) $ (3.6 ) (42 )%
Diluted Earnings (Loss) Per Share $ (0.09 ) $ (0.07 ) (29 )%

The 3% revenue growth was due to a 7% increase in commissions and fees driven primarily by higher international sales volume; a 6% increase in program and other fees due to higher incentive open loop gift card sales from Achievers and the addition of extrameasures and; a 30% decline in product sales primarily due to Cardpool, partially offset by product sales growth at Achievers; and a 10% increase in marketing revenues due to higher international promotional revenues.

The net loss decrease was driven primarily by lower sales of U.S. retail open loop gift cards due to EMV restrictions, higher non-cash acquisition-related expenses, higher non-cash stock compensation expense, higher depreciation and increased interest expense.

The CEO/President commented:

Both the international and incentives segments produced healthy growth in GAAP operating revenues and in adjusted operating revenues while delivering expanded segment operating margins and adjusted EBITDA margins for the second consecutive quarter. The EMV(1) impact on the U.S. retail segment was in line with our expectations and together with lower Cardpool revenues caused U.S. retail revenues to decline 8% and adjusted operating revenues to decline 19% compared to last years third quarter.

We continue to believe the negative impact of EMV on U.S. retail is largely a 2016 event. By the end of October 2016, we believe that stores representing approximately 95% of 2016 estimated open loop transaction dollar volume will be compliant. As a result, these accounts are now lifting restrictions on gift card sales and we are assisting our distribution partners in returning a complete offering of gift products to shelves in time for the important holiday season.

The CFO added:

GAAP net loss increased 41% in the third quarter of 2016 primarily due to the EMV impact on revenues along with increased acquisition related expenses, including interest expense on increased borrowings. Adjusted EBITDA declined 7% for total Blackhawk. For the U.S. retail segment, operating profit and adjusted EBITDA declined 18% and 17%, respectively, during the third quarter of 2016 reflecting the impact of EMV. The shortfall in Cardpool revenues had minimal impact on net loss and adjusted EBITDA. Segment operating profit and adjusted EBITDA growth in the international segment was 28% and 33%, respectively, and 99% and 53%, respectively, in the incentives segment. Growth in adjusted corporate and unallocated expenses was limited to 5% during the third quarter.”

Annual GAAP guidance was given as the following:

$ in millions except per share amounts 2016 Guidance 2015 Actual % Change
Operating Revenues $1,950 to $2,014 $ 1,801 8% to 12%
Net Income $13 to $25 $ 46 -72% to -46%
Diluted EPS $0.22 to $0.41 $ 0.81 -73% to -49%

Finally, here is a quick recap of small cap Blackhawk Network Holdings recent earnings history along with EPS estimate trends from the Yahoo! Finance analyst estimates page:

EPS Est. 1.25 0.32 0.24 0.09
EPS Actual 1.26 0.17 0.13 0.14
Difference 0.01 -0.15 -0.11 0.05
Surprise % 0.80% -46.90% -45.80% 55.60%
EPS TrendCurrent Qtr.Next Qtr.Current YearNext Year
Current Estimate 1.11 0.21 1.56 1.88
7 Days Ago 1.11 0.21 1.56 1.88
30 Days Ago 1.11 0.21 1.56 1.88
60 Days Ago 1.1 0.21 1.56 1.89
90 Days Ago 1.1 0.21 1.56 1.89

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