MasterCard Inc. (MA - Analyst Report) reported second-quarter 2013 operating earnings per share of $6.96. The results remarkably beat the Zacks Consensus Estimate of $6.32 and significantly surpassed the year-ago quarter figure of $5.65.
Net income for the reported quarter stood at $848 million, up 18.9% from $713 million in the prior-year quarter. Including the post-tax litigation provision expense of $13 million, the company’s reported net income in the prior-year quarter stood at $700 million. However, 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 nominal growth in expenses. These factors also led to higher-than-expected margins and operating cash flow.
Total revenue jumped 15.2% year over year and on constant currency basis to $2.1 billion, also exceeding the Zacks Consensus Estimate of $2.0 billion. The upside was primarily due to an 11% surge in the number of processed transactions to 9.5 billion along with a 17% increase in cross-border volumes.
During the reported quarter, GDV increased 13% to $1.0 trillion, while worldwide purchase volume rose 12% year over year, on a constant currency basis, to $734 billion. As of Jun 30, 2013, MasterCard had issued 1.9 billion MasterCard-and Maestro-branded cards.
Total operating expenses edged up 2.6% year over year to $868 million. The overall increase primarily resulted from an 8.9% year-over-year surge in depreciation and amortization expenses along with a 5.1% uptick in general and administrative expenses. Moreover, advertising and marketing expenses climbed 3.9% over the prior-year quarter.
Subsequently, operating income escalated 26.1% year over year to $1.23 billion in the reported quarter. Likewise, core operating margin rose to 58.6% from 54.6% in the year-ago quarter. MasterCard's effective tax rate for the reported quarter was 31.2%, higher than 28.0% in the year-ago period.
As of Jun 30, 2013, MasterCard’s net operating cash flow significantly augmented 51.1% year over year to $1.61 billion. At the end of Jun 2013, cash and cash equivalents increased to $2.35 billion from $2.05 billion at 2012-end, while long-term debt remained nil.
Meanwhile, retained earnings increased to $8.82 billion at the end of Jun 2013 from $7.35 billion at 2012-end. Moreover, total equity climbed to $7.03 billion from $6.93 billion at Dec 2012.
Share Repurchase Update
During the reported quarter, MasterCard repurchased about 1.1 million shares for $581 million. Until Jul-end, MasterCard bought back an additional 296,000 shares for approximately $174 million since the second quarter of 2013.
To date, about $1.1 million of stock remains available under the latest $2.0 billion share repurchase program, which was authorized in Feb 2013.
On May 9, 2013, MasterCard paid a regular quarterly dividend of 60 cents per share to shareholders of record as on Apr 9, 2013. In Feb 2013, this dividend was hiked by 100% from 30 cents a share.
On Jul 24, MasterCard’s prime peer – Visa Inc. (V - Analyst Report) – reported fiscal third-quarter (ended Jun 30, 2013) operating earnings of $1.88 per Class A common share, which comfortably exceeded the Zacks Consensus Estimate of $1.79 and the prior-year quarter figure of $1.56 per share. Double-digit top-line growth along with controlled expenses drove the improved results. Visa carries a Zacks Rank #2 (Buy).
MasterCard carries a Zacks Rank #3 (Hold). Other outperforming financial transaction service providers include Heartland Payment Services Inc. and Xoom Corp. . Both the stocks carry a Zacks Rank #2 (Buy).