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MasterCard Earnings Miss Est, Up Y/Y

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MasterCard Inc. (MA - Free Report) reported fourth-quarter 2013 operating earnings per share (EPS) of 57 cents. The results missed the Zacks Consensus Estimate of 60 cents but outpaced the year-ago quarter figure of 49 cents. The EPS is post 10-for-1 common stock split effective Jan 21, 2014.

Operating net income rose 13% year over year to $684 million. Including post-tax charge related to the opt-outs in the U.S. merchant litigations of $61 million or 5 cents a share, reported net income stood at $623 million or 52 cents per share, up 13.8% from $605 million in the prior-year quarter. No special items were recorded in the year-ago quarter.

Results reflected better pricing, increased number of processed transactions and strong gross dollar value (GDV) growth, partially offset by higher operating and tax expenses. Overall, these factors also led to stable margins and higher-than-expected operating cash flow.

Net revenues surged 12.2% year over year and 11% on constant currency basis to $2.13 billion, marginally missing the Zacks Consensus Estimate of $2.14 billion. The year-over-year upside was primarily due to a 13% rise in the number of processed transactions to 10.4 billion along with a 18% increase in cross-border volumes.

During the reported quarter, GDV increased 14% to $1.1 trillion, while worldwide purchase volume rose 12% year over year, on a constant currency basis, to $805 billion. As of Dec 31, 2013, MasterCard had issued 2.0 billion MasterCard-and Maestro-branded cards.

Total core operating expenses rose 11.5% year over year to $1.11 billion. The overall increase primarily resulted from a 14.5% year-over-year rise in depreciation and amortization expenses along with a 12.5% uptick in general and administrative expenses. Moreover, advertising and marketing expenses grew 8.8% over the prior-year quarter.

Subsequently, core operating income escalated 12.9% year over year to $1.02 billion in the reported quarter. Likewise, core operating margin rose to 47.7% from 47.4% in the year-ago quarter. MasterCard's effective tax rate was 32.0%, marginally lower than 32.4% in the year-ago period.

Highlights of Full-Year 2013

For full-year 2013, MasterCard’s operating earnings stood at $2.61 per share, missing the Zacks Consensus Estimate of $2.64 but soaring from $2.20 generated in 2012. Operating net income increased 14.6% year over year to $3.18 billion.

Including post-tax litigation provision charge of $61 million or 5 cents a share in 2013 and that of $13 million or 1 cent a share in 2012, reported net income stood at $3.12 billion or $2.56 per share in 2013, up from $2.76 billion or $2.19 a share in 2012.

Net revenue increased 12.9% year over year and 13% on constant currency basis to $8.35 billion, and was in line with the Zacks Consensus Estimate.

Total core operating expenses grew 9.1% year over year to $3.75 billion. Additionally, core operating income jumped 16.2% year over year to $4.6 billion in 2013, while core operating margin rose to 55.1% from 53.5% in prior year.

Financial Update

As of Dec 31, 2013, MasterCard’s net operating cash flow significantly augmented 40.3% year over year to $4.14 billion. At the end of 2013, cash and cash equivalents increased to $3.6 billion from $2.05 billion at 2012-end, while long-term debt remained nil.

Meanwhile, retained earnings increased to $10.12 billion at the end of Dec 2013 from $7.35 billion at 2012-end. Moreover, total equity soared to $7.5 billion from $6.93 billion at Dec 2012.

Stock-Split Update

On Dec 10, 2013, MasterCard announced its first 10-for-1 common stock split, under which the company issued 9 more shares against each share held by an investor. This was distributed on Jan 21, 2014 to shareholders of record as on Jan 9. Overall, the company issued about 1.1 billion additional shares, thereby increasing the total shares outstanding to 1.2 billion from 120 million.

Share Repurchase Update

During the reported quarter, MasterCard repurchased about 9.8 million shares for $751 million, while 41 million shares were re-bought for $2.4 billion in full-year 2013. Until Jan 24, 2014, the company bought back another 4.2 million shares for $351 million.

On Dec 10, 2013, the board of MasterCard sanctioned a new share repurchase program worth $3.5 billion. The company has about $3.3 million worth of stock available under the latest share repurchase program.

Dividend Update

On Dec 10, 2013, the board of MasterCard hiked its quarterly dividend by 83% to $1.10 per share from the prior pay-out of 60 cents. Post the stock split, this equated to 11 cents per share or an annual dividend of 44 cents.

The raised dividend will be paid on Feb 10, 2014 to shareholders of record as on Jan 9, 2014. This marks the second hike in 2013. Previously, MasterCard had increased its dividend annually by 100% each in Feb of 2013 and 2012.


On Jan 30, MasterCard’s prime peer – Visa Inc. (V - Free Report) – reported fiscal first-quarter (ended Dec 31, 2013) operating earnings of $2.20 per Class A common share, surpassingthe Zacks Consensus Estimate of $2.16 and the prior-year quarter figure of $1.93 per share. Double-digit top-line growth along with controlled expenses propelled the improved results.

While Visa and MasterCard carry a Zacks Rank #3 (Hold), some better-ranked financial stocks like Xoom Corp. and Equifax Inc. (EFX - Free Report) bear a Zacks Rank #2 (Buy).

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