MasterCard Inc.’s (MA - Analyst Report) fourth-quarter 2012 operating earnings per share of $4.86 modestly beat the Zacks Consensus Estimate of $4.79 and the year-ago quarter’s earnings of $4.03, primarily based on low share count.
Net income for the reported quarter stood at $605 million, up 17.7% from $514 million in the prior-year quarter. Reported net income, including after-tax provision for litigation settlement charge of $495 million or $3.88 per share, stood at $19 million or 15 cents a share in the year-ago quarter. No special items were recorded in the reported quarter.
The better-than-expected results were largely due to the outcome of better pricing, increased number of processed transactions, strong gross dollar value (GDV) growth and marginal growth in tax rate. Modest growth in operating expenses also supported the margins’ upside.
Total revenue grew 9.7% year over year to $1.9 billion, almost in line with the Zacks Consensus Estimate of $1.89 billion. On a constant currency basis, net revenue increased 12.0%. The upside was primarily due to a 20.0% jump in the number of processed transactions to 9.2 billion along with a 17.0% increase in cross-border volumes.
During the reported quarter, GDV increased 14.0% to $986 billion, while worldwide purchase volume rose 13.0% year over year, on a constant currency basis, to $727 billion. As of December 31, 2012, MasterCard had issued 1.9 billion MasterCard-and Maestro-branded cards.
Total operating expenses climbed 2.9% year over year to $996 million, excluding the litigation charges in the year-ago quarter. On a constant currency basis, operating expenses increased 4.0% over the prior-year period.
The overall increase primarily resulted from a 19.2% year-over-year upsurge in depreciation and amortization expenses along with a 7.0% increase in general and administrative expenses. However, advertising and marketing expenses fell 7.5% year over year to $295 million.
Excluding the litigation charges in the year-ago quarter, operating income increased 18.3% year over year to $899 million in the reported quarter. Moreover, operating margin marginally rose to 47.4% from 44.0% in the year-ago quarter. MasterCard's effective tax rate for the reported quarter was 32.4%, almost in line with 32.3% in the year-ago period.
Highlights of Full-Year 2012
For full-year 2012, MasterCard reported operating earnings of $22.04 per share, which exceeded the Zacks Consensus Estimate of $22.00 as well as $18.70 a share recorded in 2011. Operating net income for the reported quarter stood at $2.77 billion, up 15.5% from $2.40 billion in 2011. This excluded after-tax litigation expense of $13 million or 10 cents recorded in 2012 and $945 million or $3.85 per share recorded in 2011.
Including these, reported net income stood at $2.76 billion or $21.94 per share in 2012 compared with $1.91 billion or $14.85 per share in 2011. Additionally, total revenue increased 10.1% year over year to $7.39 billion, which inched past the Zacks Consensus Estimate of $7.38 billion.
Total operating expenses, excluding the litigation expenses, rose 6.3% over 2011 to $3.43 billion, while operating margin grew to 53.5% against 51.9% in 2011. Tax rate lowered to 29.9% in 2012 from 31.8% in 2011, primarily due to benefits from additional export incentives and conclusion of tax examinations in certain jurisdictions.
As of December 31, 2012, MasterCard’s net operating cash flow increased 9.8% over 2011 to $2.95 billion. At the end of 2012, cash and cash equivalents slightly reduced to $2.05 billion from $3.73 billion at 2011-end, while long-term debt remained nil.
Meanwhile, retained earnings increased to $7.35 billion at the end of 2012 from $4.75 billion at the end of 2011. Total equity rose to $6.93 billion from $5.88 billion as of December 31, 2011.
Share Repurchase Update
On June 5, 2012, the board of MasterCard sanctioned a new $1.5 billion share repurchase program for its Class A common stock. Accordingly, during the reported quarter, MasterCard repurchased about 1.3 million shares for $613 million. Until January-end, MasterCard has bought back an additional 322,000 shares for approximately $165 million since the fourth quarter of 2012.
Till date, about $440 million of stock remains available under the latest $1.5 billion share repurchase program authorization. Overall, the company bought back 4.1 million shares worth $1.7 billion in 2012.
On December 4, 2012, the board announced a regular cash dividend of 30 cents per share, which will be paid on February 8, 2013, to shareholders of its Class A common stock and Class B common stock as on January 9, 2013.
On November 9, 2012, MasterCard paid a regular cash dividend of 30 cents a share to shareholders of its Class A common stock and Class B common stock as on October 10, 2012.
Other strong performers in the payment processing industry such as Heartland Payments System Inc. and Equifax Inc. (EFX - Analyst Report), both carrying a Zacks Rank #1 (Strong Buy) stocks, are scheduled to release results before the opening bell on February 7, 2013 and after market closes on February 6, 2013, respectively.
Last week, another electronic payment processor and merchant acquirer, Total System Services Inc. (TSS - Analyst Report) – a Zacks Rank #2 (Buy) stock – reported fourth-quarter 2012 operating earnings of 32 cents per share, a penny below the Zacks Consensus Estimate and 3.4% higher than the year-ago quarter’s earnings of 31 cents per share. Results benefited from higher number of accounts on file and new client growth, partially offset by higher operating expenses. MasterCard carries a Zacks Rank #2 (Buy).