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Mastercard (MA) Q1 Earnings Beat on Volume Growth, Shares Up

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Mastercard Incorporated (MA - Free Report) reported first-quarter adjusted earnings per share of $1.50 per share, beating the Zacks Consensus Estimate of $1.26. Earnings improved 43% year over year (on a currency neutral basis).

Better-than-expected results were primarily backed by higher switched transactions, increase in cross-border volume and gross dollar volume as well as gains from acquisitions. An increase in rebates and incentives year over year was a partial dampener.

Shares gained 4.5% in the pre-market trading session, reflecting the outperformance.

Mastercard Incorporated Price, Consensus and EPS Surprise

Strong Operational Performance

Mastercard’s revenues of $3.6 billion in the quarter increased 27% year over year (on a currency neutral basis). The Zacks Consensus Estimate was $3.25 billion. The new revenue recognition rules and acquisitions contributed 4% and 2.5% to the revenue growth, respectively.

Total adjusted operating expenses increased 32% to $1.6 billion. Operating margin contracted 140 basis points to 54.2%, due to higher, general and administrative expenses, advertising and marketing expenses, depreciation and provision for litigation expenses.

Gross dollar volume increased 14% to $1.42 trillion while cross-border volumes were up 21% on a local currency basis.

The company’s margins gained from a lower tax rate of 17.3% in the first quarter compared with 26.9% in the year-ago quarter.

As of Mar 31, 2018, the company’s customers had issued 2.4 billion Mastercard and Maestro-branded cards, adjusted for the impact of the Venezuela deconsolidation.

Investment income rose 13% while interest expenses increased 10.3% year over year to $49 million.

Financial Update

As of Mar 31, 2018, the company’s cash and cash equivalents were $6.9 billion, up 16% from the level at year-end 2017. Long-term debt increased 1.8% to $8.95 billion from the mark at 2017-end.

Share Repurchase and Dividend Payment

During the reported quarter, Mastercard repurchased shares worth $1.4 billion and returned $263 million in dividends.

Our Take

Mastecard’s results reflect its strong operating performance, driven by its continued efforts to cater superior service to its customers. Its acquisitions, investments in technology, a number of deals and partnerships signed with clients across the globe are expected to consistently aid its transaction volume growth, thus driving up the top line.

Moreover, increasing use of plastic money to replace cash provides ample room for the company’s growth. Its strong balance sheet and disciplined capital management strategy are the other positives.

Zacks Rank

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

Performance of Other Financial Transaction Service Providers

Among the other financial transaction service providers, the bottom line of Alliance Data Systems Corporation , American Express Co. (AXP - Free Report) and Total System Services, Inc. beat the respective Zacks Consensus Estimate in the first quarter.

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