Visa Inc.’s (V - Analyst Report) fiscal first-quarter 2014 (ended Dec 31, 2013) operating earnings of $2.20 per Class A common share comfortably surpassed the Zacks Consensus Estimate of $2.16 and the prior-year quarter figure of $1.93 per share. Net income increased 8.8% to $1.41 billion from $1.29 billion in the year-ago quarter.
Alongside, total operating revenue for the reported quarter stood at $3.16 billion, up 10.9% year over year and exceeding the Zacks Consensus Estimate of $3.14 billion. Growth was driven by higher card spending and strong performance across all segments. However, currency fluctuations in the U.S. negated growth by 2%.
Service revenues increased 9.2% year over year to $1.42 billion and are recognized based on payments volume in the prior quarter. All other revenue categories are recognized based on the current quarter activity. Data processing revenues grew 13.4% from the prior-year period to $1.26 billion.
Additionally, International transaction revenues, which are driven by cross-border payments volume, rose 10.7% over the prior-year quarter to $891 million. Other revenues, earned through Visa Europe’s licensing fee, were $180 million, almost flat from $179 million in the year-ago quarter. Client incentives, which is a contra-revenue item, came in at $599 million, and accounted for about 16% of gross revenues.
On a constant dollar basis, payment volume increased 11% year over year to $1.2 trillion. Total processed transactions carrying the VisaNet brand increased 13% year over year to 16.0 billion. Cross border volume, on a constant dollar basis, grew 12% over the prior-year quarter.
Meanwhile, total operating expenses edged up 3.1% year over year to $1.08 billion. Consequently, Visa’s operating income grew 15% to $1.75 billion, while operating margin escalated to 65.8% from 63.2% in the year-ago period.
As of Dec 31, 2013, cash and cash equivalents as well as trading and available-for-sale investment securities totaled $4.09 billion, down from $4.26 billion as of Sep 30, 2013. Nevertheless, long-term debt remained nil, while total assets ascended to $36.25 billion from $35.96 billion at fiscal 2013-end. Total equity was $27.01 billion, up from $26.87 billion as of Sep 30, 2013.
Further, Visa’s operating cash flow stood at $1.54 billion at the end of fiscal first-quarter 2014 against a cash outflow $2.82 billion recorded in the year-ago period.
During the reported quarter, Visa repurchased about 5.5 million class A common shares for a total cost of $1.1 billion.
In Oct 2013, the board had sanctioned a new share repurchase program worth $5.0 billion, while shares worth $4.2 billion were available for buybacks at the end of Dec 2013.
Visa reiterated the financial outlook for fiscal 2014, anticipating annual operating earnings per share to grow in mid-to-high teens range. Annual net revenue growth is expected to be within low double digits, with an adverse foreign currency impact of about 2%.
Meanwhile, the company reaffirmed annual operating margin of low-60% range. Further, Visa expects client incentives within 16.5−17.5% of gross revenues. Additionally, annual free cash flow is estimated to be around $5 billion in fiscal 2014.
On Jan 29, 2014, the board declared its quarterly dividend of 40 cents per share to class A common stock, payable on Mar 4, 2014, to the shareholders of record as on Feb 14.
In Oct 2013, Visa hiked its quarterly dividend by 21.2% to 40 cents per share from the prior 33 cents, marking the 5th consecutive annual dividend increment. The hiked dividend was paid on Dec 3, 2013, to the company’s common shareholders of record as on Nov 15, 2013.
On Jan 16, rival American Express Co. (AXP - Analyst Report) reported its fourth-quarter 2013 operating earnings per share of $1.21. The result lagged the Zacks Consensus Estimate of $1.26 but outpaced the year-ago quarter earnings of 56 cents a share. Improved cardmember spending and reduced expenses supported the year-over-year growth.
Meanwhile, MasterCard Inc. (MA - Analyst Report) is slated to release its fourth-quarter 2013 earnings before the opening bell on Jan 31. While Visa and MasterCard carry a Zacks Rank #3 (Hold), American Express, and peer, Xoom Corp. , bear a Zacks Rank #2 (Buy).