By Padraic Halpin
DUBLIN (Reuters) - Paddy Power Betfair (I:PPB), (L:PPB) cut its full-year outlook due to the introduction of additional taxes and losses from its growing U.S. business, even as earnings and revenue grew at a much faster rate in the second quarter.
Paddy Power Betfair warned in May that profit growth could stall this year after earnings fell in the first quarter on higher taxes and a subdued performance in its main European online business.
At that point, it guided for full-year underlying core earnings or EBITDA of 470-495 million pounds compared to 18 percent growth last year, when earnings came in ahead of expectations at 473 million pounds.
It said on Tuesday it expected underlying EBITDA of 460-480 million pounds, before the impact of U.S. sports betting, as recent positive momentum was offset by continued weakness in horse-racing revenues at its Betfair exchange, new Australian taxes and the inclusion of the FanDuel operations in the U.S.
Paddy Power Betfair agreed in May to merge its U.S. business with the fantasy sports company to target a market that is set to open up in the coming years. Merrion Stockbrokers estimated last month that it would be 2021 before the U.S. made any meaningful contribution to earnings.
However both revenues and underlying earnings, excluding changes in betting taxes and U.S. losses, rose 13 percent across the group in the second quarter compared to a flat first quarter as the Irish firm reported a strong conclusion to the soccer World Cup and a better than expected performance in gaming.
All brands and divisions contributed to the growth and it reported good progress in returning the Paddy Power brand to growth after it suffered from a lack of product investment following the 2016 merger with betting exchange Betfair.
"I think that the business has got its mojo back," Chief Executive Peter Jackson told Reuters in a telephone interview, referring to Paddy Power, which he said was the most talked about brand in social media in its main British market in June.
Shares in the group were 2.7 percent lower at 7,905 pence by 0815 GMT, bottom of Britain's top share index (FTSE)
"Overall there are positives and negatives in this morning's release. However, we are encouraged by the improving momentum seen across the group in Q2," Goodbody analyst Gavin Kelleher, who sees full year earnings coming in at 480 million pounds, wrote in a note.
"The majority of underlying trends are pointing in the right direction. These, along with its US strategy, give us comfort in the long-term growth potential of the group."