Visa Inc.’s (V) first-quarter fiscal 2015 (ended Dec 31, 2014) operating earnings per Class A common share (EPS) of $2.53 beat the Zacks Consensus Estimate of $2.50 by 1.2%. With this, the company kept the earnings streak alive for the five trailing quarters, with an average beat of 2.1%. EPS also surged 15% from the prior-year quarter figure of $2.20 per share.
Operating net income increased 11.5% to $1.57 billion from $1.41 billion in the year-ago quarter. No extraordinary items were recorded for both the comparable quarters.
Alongside, total operating revenue for the reported quarter was $3.38 billion, up 7.2% year over year but lagged the Zacks Consensus Estimate of $3.43 billion. On constant currency basis, revenues grew 9% from the year-ago period. The year-over-year upside was driven by higher card spending and modest performance across all segments.
Service revenues increased 8.4% year over year to $1.54 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 grew 9.4% from the prior-year period to $1.38 billion.
Additionally, International transaction revenues, which are driven by cross-border payments volume, rose 8.9% from the prior-year quarter to $970 million. Other revenues, earned through Visa Europe’s licensing fee, were $204 million, improving 13.3% from the year-ago quarter. Client incentives, which is a contra-revenue item, came in at $713 million, and accounted for 17.4% of gross revenues.
On a constant dollar basis, payment volume increased 11% year over year to $1.2 trillion. Total processed transactions carrying the VisaNet brand increased 10% year over year to 17.6 billion. Cross border volume, on a constant dollar basis, grew 8% from the prior-year quarter.
Meanwhile, total operating expenses rose 6.1% year over year to $1.14 billion, due to higher personnel, marketing, depreciation-amortization and general-administrative expenses. However, Visa’s reported operating income climbed 7.8% to $2.24 billion. Furthermore, operating margin rose to 66.2% from 65.8% in the year-ago period.
Financial Update
As of Dec 31, 2014, cash and cash equivalents and available-for-sale investment securities amounted to $4.58 billion, up from $3.95 billion as of Sep 30, 2014. Nevertheless, long-term debt remained nil at Dec 2014-end, while total assets increased to $38.88 billion from $38.57 billion at fiscal 2014-end. Total equity was $27.94 billion, up from $27.41 billion as of Sep 30, 2014.
Further, Visa’s operating cash flow stood at $1.76 billion at the end of Dec 2014, surging 14.3% from $1.54 billion recorded in the year-ago quarter.
Stock Repurchase Update
During the reported quarter, Visa repurchased about 3.1 million Class A common shares for a total cost of $803 million from open market operations, while another 2.5 million shares were bought back for $650 million so far in second quarter of fiscal 2015, until Jan 27.
In Oct 2014, the board sanctioned a new share repurchase program worth $5.0 billion. Including $682 million from the current set authorized in Oct 2013 and shares repurchased from Oct 2014 through Jan 2015, Visa now has $4.2 billion of shares available for repurchase.
Stock Split Update
On Jan 28, 2015, Visa announced its first 4-for-1 common stock split, under which the company issued 3 more shares against each share held by an investor. These will be distributed on Mar 18 to shareholders of record as on Feb 13. Overall, the company has issued about 1.89 billion additional shares, thereby increasing the total shares outstanding to 2.5 billion from 614 million.
While no shares will be given out to Class B & C shares during the stock split, their conversion rates will be increased to 1.6483 shares and 4.0 shares of Class A, respectively.
Guidance
Visa reiterated the financial outlook for fiscal 2015, anticipating annual operating earnings per share to grow in mid-teens range. Annual net revenue growth is expected to be within low double-digits, with an adverse foreign currency impact of about 2%.
Meanwhile, the company expects annual operating margin in the mid-60% range. Further, Visa expects client incentives within 17.5−18.5% of gross revenue. Additionally, annual free cash flow is estimated to be over $6 billion in fiscal 2015. Tax rate is likely to be in low-30% band.
Dividend Update
On Jan 28, 2015, the board declared a quarterly dividend of 48 cents per share of Class A common stock, payable on Mar 3, to shareholders of record as on Feb 13.
On Oct 22, 2014, Visa hiked its quarterly dividend by 20% to 48 cents per share of Class A common stock from the prior 40 cents, marking the 6th consecutive annual dividend increment. This brings the annual dividend to $1.92 per share from prior payout of $1.60.
The hiked dividend was paid on Dec 2, 2014, to the company’s common shareholders of record as on Nov 14. Previously in October of 2013 and 2012, the company had raised its dividend by 21.2% and 50%, respectively.
Zacks Rank
Currently, Visa carries a Zacks Rank #3 (Hold).
Peers
On Jan 21, Visa’s close competitor, American Express Co. (AXP) reported fourth-quarter 2014 operating earnings per share of $1.39, which surpassed the Zacks Consensus Estimate of by a penny. This marked the company’s fourth consecutive earnings beat. EPS also topped the year-ago quarter figure of $1.21 by 15%. Improved cardmember spending was partly offset by slightly higher expenses.
On the same day, another peer, Discover Financial Services (DFS) reported fourth-quarter 2014 earnings per share of $1.19 that missed the Zacks Consensus Estimate of $1.30 and lagged 3% from the year-ago quarter. Higher loan reserves and lower revenues primarily led the decline in earnings.
Meanwhile, MasterCard Inc. (MA) is slated to release fourth-quarter 2014 earnings before the opening bell on Jan 30.
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