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Mastercard (MA) Q2 Earnings Beat Estimates, Decline Y/Y

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Mastercard Inc.’s (MA - Free Report) second-quarter 2020 earnings of $1.36 per share beat the Zacks Consensus Estimate by 18.3%. However, the bottom line declined 26% year over year.

The year-over-year downside was due to a contraction in gross dollar volume, lower switched transactions and a weak cross-border business. However, decreased rebates and incentives helped earnings to some extent.

Mastercard’s revenues of $3.3 billion beat the Zacks Consensus Estimate by 2.3% but fell 17% on a currency-neutral basis. Total adjusted operating expenses declined 5% to $1.6 billion owing to a dip in advertising and marketing, travel and professional fee spend.

Adjusted operating margin of 51.8% was down 600 basis points year over year.

Mastercard Incorporated Price, Consensus and EPS Surprise

Gross dollar volume was down 10% to $1.4 trillion while cross-border volumes plunged 45% on a local-currency basis.

Switched transactions, which indicate the number of times a company’s products were used to facilitate transactions, declined 10% year over year.

Share Repurchase and Dividend Payout

During the second quarter, Mastercard paid $401 million in dividends. The company resumed its share buyback program at the end of the second quarter. Quarter to date through Jul 27, the company bought back shares worth $1.0 billion, leaving $5.9 billion under the current repurchase authorization.

Balance Sheet Position

The company’s long-term debt as of Jun 30, 2020 was $12.5 billion, up 46% from the level as of Dec 31, 2019 because a $4-billion long-term debt was issued in March.  However, cash and cash equivalents of $11.1 billion soared 59.4% from the level as of Dec 31, 2019.

Our Take

Despite the COVID-19-led business disruption, which ate into the company’s cross-border revenues, overall earnings gained from expansion in gross dollar volumes.

Further, the company’s strategy to invest in organic and inorganic growth opportunities bodes well. Its strong brand name, vast business network, global presence, investment in technology, several partnerships, tie-ups and acquisitions should help it easily tide over the current economic difficulties that dented its earnings.

Zacks Rank and Other Releases

Mastercard carries a Zacks Rank #3 (Hold), currently. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Peers in the same space that already released June-quarter earnings include American Express Co. (AXP - Free Report) and Visa Inc. (V - Free Report) , both of which beat on earnings by 123.1% and 3.92%, respectively. However, Discover Financial Services’ (DFS - Free Report) bottom line missed estimates by 2500%.

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