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Visa (V) Beats on Q3 Earnings and Revenues, Tweaks View

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Riding on higher revenues, Visa Inc. (V - Free Report) reported third-quarter fiscal 2017 (ended Jun 30, 2017) earnings of 86 cents per share, beating the Zacks Consensus Estimate of 80 cents. Also, the bottom line improved 25% year over year.

 

 

Results were driven by the acquisition of Visa Europe and solid growth in payments volume as well as processed transactions. However, on the downside, the quarter witnessed higher operating expenses.

Operational Update

Net operating revenue of $4.6 billion surpassed the Zacks Consensus Estimate of $4.4 billion. Also, revenues climbed 26% year over year. This upside was primarily driven by the acquisition of Visa Europe and consistent growth in payments volume, cross-border volume and processed transactions.

On a constant dollar basis, payments volume growth for the reported quarter surged 38% year over year to $1.9 trillion. Cross-border volume growth was 147% for the quarter. Cross-border volume growth, on a constant dollar basis when normalized for Europe, was 11% year over year. This growth was partly offset by adverse foreign exchange movement.

Total processed transactions for the reported quarter were 28.5billion, reflecting a 44% rise year over year. When normalized for Europe, total processed transactions growth was 13% over the prior year quarter.

Service revenues rallied 19% year over year to $1.9 billion on payments volume in the prior quarter. Notably, other revenue components are based on the reported quarter’s activity. Data processing revenues were up 29% on a year-over-year basis to $2.0 billion, while international transaction revenues surged 45% to $1.6 billion. Other revenues remained flat year over year at $209 million.

Client incentives of $1.1 billion represented 25% of net operating revenues in the reported quarter.

Operating expenses plunged 52% year over year to $1.5 billion. Excluding special items related to the takeover of Visa Europe, operating expenses jumped 31% year over year on Visa Europe acquisition.

Foreign exchange rate shift negatively impacted earnings per share growth by approximately 2%.

Visa Inc. Price, Consensus and EPS Surprise

Financial Update

Cash, cash equivalents and available-for-sale investment securities were $11.1 billion as of Jun 30, 2017, up from $9.9 billion as of Sep 30, 2016. Total assets were $64 billion as of Jun 30, 2017, almost flat with 2016 fiscal year end level.

Dividend and Share Repurchase Update

Visa repurchased shares worth $2.1 billion during the quarter. The company currently has $5.5 billion of funds available for share repurchase.

On Jul 17, 2017, the board of directors approved of a quarterly cash dividend of $0.165 per share. The dividend will be paid on Sep 5, to the shareholders of record as of Aug 18.

Fiscal 2017 Guidance Tweaked

For fiscal 2017, Visa largely reaffirmed its guidance. Annual operating margin is anticipated at mid-60%, while client incentives are expected to account for 20–20.5% of gross revenue. Additionally, the effective tax rate projection has been reiterated at 30%.

Visa reaffirmed annual net revenue growth of 20% with an adverse foreign currency impact of 2%. Adjusted earnings per share growth are projected to be 20% on a normal dollar basis, including 2.5% of negative foreign currency impact.

Our Take

Visa’s results reflect robust performance. The company remains well positioned for growth on the back of a solid market position and significant opportunities from its secular shift toward electronic payments. However, high client incentives remain as concerns.

American Express Co. (AXP - Free Report) and Alliance Data Systems Corp from the same space also came out with flying colors, with bottom lines beating their respective Zacks Consensus Estimate in the reported quarters.

Visa carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Another top-ranked financial transaction service provider, MasterCard Inc (MA - Free Report) , with a Zacks Rank #2 is set to release its second-quarter results next week.

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