Key Takeaways From VeriFone's Q1 Results

VeriFone Systems Inc PAY reported a first-quarter beat, driven by strength in Asia from accelerated volumes in India due to the demonetization. But, shares are in the red on soft outlook.

NA Weakness, Margin Pressures Persist

VeriFone’s NN revenues declined 28 percent to $169 million on weakness in the taxi business from increased competition as well as the Petro media de-consolidation and difficult EMV comps in the United States.

The company now expects NA revenues to decline 18 percent from prior guidance of 15 percent to 16 percent, however continues to expect a return to positive year-over-year growth starting in the fourth quarter.

Margins were soft due to the mix shift in growth. Gross margins of 38.9 percent came in below consensus estimate of 39.6 percent, hurt by higher growth in Asia which carries a lower margin profile.

In fact, VeriFone expects the margins to be pressured in the second quarter before ramping in the second half of 2017.

Q2 EPS View Below Street

Also, the company’s second quarter EPS outlook missed Street. VeriFone guided to second-quarter revenues of $470 million–$475 million and expects EPS of $0.29. Consensus estimate calls for an EPS of $0.33 on revenue of $469.9 million.

The company reiterated guidance for FY 2017 including revenues in the range of $1.900 billion–$1.915 billion and EPS of $1.35–$1.39. Analysts, on average, expect EPS of $1.37 on revenue of $1.905 billion.

“Margins are expected to be pressured in 2Q17 due to growth in Asia with 2H17 showing material improvement as new products ramp and mix improves from higher growth in NA and Europe coupled with supply chain optimization,” Deutsche Bank analyst Bryan Keane wrote in a note.

Keane maintains his Hold rating and $15 price target on the shares.

At last check, shares of VeriFone fell 5.55 percent to $19.22.

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