FleetCor Races Up Uber Long Runway For Growth

As gas prices remain low, it might be easy to assume that FleetCor Technologies (NYSE:FLT) — which makes its money by providing fuel cards and specialty payment services to commercial and government truck and auto fleets — is feeling the pinch at the pump.

Actually, Norcross, Ga.-based FleetCor, which processed more than 652 million transactions in 2014, has a relatively low exposure to oil. Only 13% of its business is directly affected by gas prices.

(Compare that with its main fleet-card competitor, Wex (NYSE:WEX), which is said to have oil-price exposure upward of 30%.)

FleetCor earns “a fixed amount on fuel-price transaction,” Topeka Capital’s John Williams explained. “They’re not as exposed to fuel price movements.”

Moreover, the company’s fuel margin is what analysts call a natural hedge against the impact of less expensive fuel.

When oil prices fall, wholesale prices drop faster than retail prices, creating a larger spread.

“This mix provides some insulation, particularly in an environment where fuel prices have been quite volatile,” wrote Williams in a June note.

Fuel cards aren’t the only source of revenue for FleetCor, which does about half its business in North America.

Enhancing its fleet operator services, the company also creates and implements commercial fuel card programs for oil partners such as Royal Dutch Shell (NYSE:RDSA), Chevron (NYSE:CVX) and BP (NYSE:BP), manages and markets private-label fleet cards, and sells custom fleet- and lodging-payment services.

Fleet Beats The Street

Last week, FleetCor bested Q2 consensus estimates with 16.5% adjusted earnings growth to $ 1.48 a share, 2 cents above views, and a 48% revenue rise to $ 404.6 million, topping forecasts for $ 403.2 million. Foreign exchange rates and lower fuel prices weighed on Q2 earnings by 28 cents per share, says Eric Dey, its chief financial officer.

The company also ramped up full-year adjusted earnings guidance to $ 6.17-$ 6.27 a share, up from the prior $ 6-$ 6.20 outlook, and boosted 2015 revenue guidance to $ 1.69 billion-$ 1.73 billion, up from $ 1.6 billion-$ 1.65 billion.

The updated guidance now includes its SVS business — management had been considering selling the provider of gift cards and stored value services, but is now mulling over a “new alternative” and will probably need the rest of the year to make a decision, said CEO Ronald Clarke during the Q2 post-earnings call.

Analysts currently expect $ 6.23 per share on revenue of $ 1.7 billion for the year.

Helping boost FleetCor in Q2 were its high-growth businesses (such as its direct MasterCard (NYSE:MA) business and CLC Lodging business) and new oil partners abroad, in addition to its recent acquisitions. Adjusted organic revenue growth was closer to 8%, Clarke says.


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