Visa Inc.’s (V) fiscal third-quarter (ended Jun 30, 2013) operating earnings of $1.88 per Class A common share comfortably exceeded the Zacks Consensus Estimate of $1.79 and the prior-year quarter figure of $1.56 per share.
Net income increased 16.1% to $1.23 billion from $1.06 billion in the year-ago quarter. Including a litigation provision of $2.89 billion or $4.30 per share, reported net loss in the year-ago quarter was $1.84 billion or $2.74 per share.
Alongside, total operating revenues for the reported quarter were $3.0 billion, up 17% year over year and ahead of the Zacks Consensus Estimate of $2.89 billion. Growth was driven by higher card spending and strong performance across all segments.
Service revenues increased 6.7% year over year to $1.3 billion and are recognized based on payments volume in the prior quarter. All other revenue categories are recognized based on the current quarter activity. Data processing revenues spiked 14.5% over the prior-year period to $1.19 billion.
Additionally, International transaction revenues, which are driven by cross-border payments volume, climbed 14.2% over the prior-year quarter to $854 million. Other revenues, earned through Visa Europe’s licensing fee, were $179 million, improving 2.3% from $175 million in the year-ago quarter. Client incentives, which are a contra-revenue item, came in at $521 million, and accounted for 14.8% of gross revenue.
On a constant dollar basis, payment volume increased 13% year over year to $1.1trillion. Total processed transactions carrying the VisaNet brand increased 14% year over year to 15.0 billion. Cross border volume, on a constant dollar basis, grew 11% over the prior-year quarter.
Meanwhile, total operating expenses jumped 9.2% year over year to $1.17 billion. However, including litigation provision of $4.1 billion, total operating expenses surged to $5.17 billion in the year-ago quarter. Excluding litigation provision adjustment, Visa’s operating income grew 22.6% to $1.83 billion, while operating margin rose to 61% from 58% in the year-ago period.
Financial Update
As of Jun 30, 2013, cash and cash equivalents and available-for-sale investment securities amounted to $6.5 billion, up from $5.4 billion as of Sep 30, 2012. Nevertheless, long-term debt remained nil.
Total shareholder equity was $27.0 billion, down from $27.63 billion as of Sep 30, 2012. Further, Visa’s operating cash flow stood at $977 million at the end of Jun 2013 against $3.64 billion recorded at the end of Jun 2012.
Stock Update
During the reported quarter, Visa repurchased about 6.0 million class A common shares for a total cost of $981 million.
Concurrently, the board sanctioned a new share repurchase program worth $1.5 billion, which is set to expire by Jul 2014. Including $61 million from the current set authorized in Feb 2013, Visa now has $1.561 billion of shares available for repurchases.
Guidance
Visa revised the financial outlook for fiscal 2013, anticipating the annual operating earnings per share to grow in the low 20% range from the prior estimate of about 20%. Annual net revenue growth is expected to be around 13%.
Meanwhile, the company affirmed annual operating margin of about 60% and capital expenditure within $425–475 million. Further, Visa expects client incentives within 16–17% of gross revenue and marketing expenses to be less than $1.0 billion.
Moreover, tax rate is expected within 30–32%. Visa continues to project annual free cash flow of about $6 billion. This includes tax benefits to be realized during fiscal 2013 related to non-recurring litigation escrow payments of approximately $4.4 billion that was made during the fiscal first quarter.
Additionally, for fiscal 2014, Visa expects annual net revenue to grow in low double digits, while annual operating earnings per share are anticipated to grow within mid-to-high teens. Annual free cash flow is estimated to be around $5 billion in fiscal 2014.
Dividend Update
On Jul 16, 2013, the board declared a quarterly dividend of 33 cents per share of class A common stock, which will be paid on Sep 4, 2013, to the company’s common shareholders of record as on Aug 16, 2013.
On Jun 4, 2013, Visa paid a quarterly dividend of 33 cents per share to common shareholders of record as on May 17, 2013. In Oct 2012, Visa declared a 50% hike in its quarterly dividend to 33 cents per share from 22 cents.
Others
Meanwhile, arch rival MasterCard Inc. (MA) is slated to release its second-quarter earnings results before the opening bell on Jul 31, 2013.
While Visa carries a Zacks Rank #2 (Buy), MasterCard carries a Zacks Rank #3 (Hold). Other strong performers in the financial sector include Heartland Payment Services Inc. (HPY) and CME Group Inc. (CME), both of which carry a Zacks Rank #1 (Strong Buy).
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