MasterCard Beats on Q1 Earnings, Revs Up - Analyst Blog

MasterCard Inc. MA reported first-quarter 2014 operating earnings per share EPS of 73 cents. The results beat the Zacks Consensus Estimate by a penny but outpaced the year-ago quarter figure of 62 cents. The EPS is post 10-for-1 common stock split effective Jan 21, 2014.

Operating net income rose 13.6% year over year to $870 million. No special items were recorded during the comparable periods.

Results reflected increased number of processed transactions and strong gross dollar value GDV growth, partially offset by higher operating and tax expenses as well as lower cash flow. However, operating margin witnessed improvement.

Net revenues surged 14.2% year over year and 14% on constant currency basis to $2.18 billion, while also surpassing the Zacks Consensus Estimate of $2.14 billion. The upside was primarily due to a 14% rise in the number of processed transactions to 9.8 billion along with 17% increase in cross-border volumes.

During the reported quarter, GDV increased 14% to $1.0 trillion, while worldwide purchase volume rose 13% year over year, on a constant currency basis, to $759 billion. As of Mar 31, 2014, MasterCard had issued over 2.0 billion MasterCard-and Maestro-branded cards.

Total core operating expenses rose 11.6% year over year to $892 million. The overall increase primarily resulted from a 17.7% rise in depreciation and amortization expenses along with a 10.2% uptick in general and administrative expenses. Moreover, advertising and marketing expenses grew 15.5% over the prior-year quarter.

Subsequently, operating income escalated 16.1% year over year to $1.29 billion in the reported quarter. Likewise, operating margin rose to 59% from 58.1% in the year-ago quarter. MasterCard's effective tax rate was 32.0%, higher than 30.5% in the year-ago period.

Financial Update

As of Mar 31, 2014, MasterCard's net operating cash flow plunged 34.9% year over year to $568 million, primarily driven by higher investments in acquisitions and strategic initiatives.

At the end of Mar 2014, cash and cash equivalents increased to $4.02 billion from $3.6 billion at 2013-end, while long-term debt stood at $1.49 billion against nil debt at 2013-end. In Mar 2014, MasterCard raised about $1.49 billion from its bond sale – the first ever executed by the company.

Meanwhile, retained earnings increased to $10.86 billion at the end of Mar 2014 from $10.12 billion at 2013-end. Moreover, total equity declined to $6.6 billion from $7.5 billion at Dec 2013.

Share Repurchase Update

During the reported quarter, MasterCard repurchased about 21.3 million shares for $1.7 billion. Until Apr 24, 2014, the company bought back another 6.2 million shares for $453 million.

On Dec 10, 2013, the board of MasterCard sanctioned a new share repurchase program worth $3.5 billion. The company has about $1.5 billion worth of stock available under this latest share repurchase program.

Dividend Update

On Feb 10, 2014, MasterCard paid its quarterly dividend of 11 cents per share to shareholders of record as on Jan 9. This was hiked by 83% in Dec 2013, marking the second hike in 2013. Previously, MasterCard had increased its dividend annually by 100% each in Feb of 2013 and 2012.

Others

On Apr 24, MasterCard's prime peer – Visa Inc. V – reported second-quarter fiscal 2014 (ended Mar 31, 2014) operating earnings of $2.20 per Class A common share which beat the Zacks Consensus Estimate by a penny and outpaced the prior-year quarter figure of $1.91 per share. Modest top-line growth along with highly controlled expenses propelled the improved margins and bottom line.

While both Visa and MasterCard carry a Zacks Rank #3 (Hold), better-ranked financial stocks like Xoom Corp. XOOM and Euronet Worldwide Inc. EEFT sport a Zacks Rank #1 (Strong Buy).