Visa Q1 Earnings Beat, Revenues In Line, Guidance Issued

Visa Inc. V posted first-quarter fiscal 2016 (ended Dec 31) operating earnings of 69 cents that marginally beat the Zacks Consensus Estimate of 68 cents.  

An increase in revenues contributed to the better-than-expected earnings, which was partly offset by the strong U.S. dollar.

Behind the Headlines

Total operating revenue for the reported quarter was $3.6 billion, up 5.4% year over year. Revenues, however, were in line with the Zacks Consensus Estimate. On a constant currency basis, revenues grew 8% from the year-ago period. The upside was driven by higher service revenues, data processing and international transaction revenues.

Service revenues increased 7% year over year to $1.6 billion. Data processing revenues grew 7% from the prior-year quarter to $1.5 billion.

Visa's International transaction revenues, which are driven by cross-border payments volume, rose 6% from the prior-year quarter to $1 billion. Other revenues, earned through Visa Europe's licensing fee, were $198 million, down 2% from the year-ago quarter. Client incentives – a contra-revenue item – came in at $788 million. Notably, this item accounted for 18.1% of gross revenues.

Payments volume growth, on a constant dollar basis, was $1.3 trillion for the quarter. This represents an 11% increase year over year. Total processed transactions carrying the VisaNet brand increased 8% year over year to 19 billion. Cross-border volume, on a constant dollar basis, grew 4% from the prior-year quarter.

Total operating expenses rose 2% year over year to $1.2 billion due to higher professional fees, network and processing as well as general and administrative expenses.

Financial Update

As of Dec 31, 2015, cash and cash equivalents amounted to $12.8 billion, up from $3.5 billion as of Sep 30, 2015. Total assets increased to $55 billion from $39.4 billion as of Sep 30, 2015. Total equity was $29.5 billion, down from $29.8 billion as of Sep 30, 2015.

Share Repurchase Update

During the reported quarter, Visa repurchased shares worth $2.1 billion. The company is now left with $5.8 billion under the current authorization.

Guidance

Visa provided detailed earnings guidance for full-year fiscal 2016. Annual net revenue growth is expected to be in the high single-digit to low double-digit range, with an adverse foreign currency impact of about 3%.

Meanwhile, Visa anticipates annual operating margin to be in the mid 60% range. Further, the company expects client incentives to account for 17.5−18.5% of gross revenue. Additionally, annual free cash flow is estimated to be over $7 billion. The tax rate would likely remain in the low 30% range

Zacks Rank and Other Stocks

Visa currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks from the same space are Emergent Capital, Inc. EMG, Financial Engines, Inc. FNGN and General Finance Corporation GFN. Each of these stocks holds a Zacks Rank #2 (Buy).

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