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Visa Beats Q3 Earnings & Revenue Estimates, Affirms View

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Visa Inc. (V - Free Report) posted third-quarter fiscal 2015 (ended Jun 30) operating earnings per Class A common share of 74 cents, beating the Zacks Consensus Estimate of 59 cents.  With this, the company has kept its earnings streak alive for the trailing seven quarters. Bottom line improved 34% year over year.

Behind the Headlines

Total operating revenue for the reported quarter was $3.5 billion, up 12% year over year and ahead of the Zacks Consensus Estimate of $3.4 billion. On a constant currency basis, revenues grew 14% from the year-ago period. The upside was driven by solid service revenues, data processing and international transaction revenues.

Service revenues increased 9% year over year to $1.6 billion and are recognized on payments volume in the prior quarter. All other revenue categories are recognized on current-quarter activity. Data processing revenues grew 6% from the prior-year quarter to $1.4 billion.

Visa's International transaction revenues, which are driven by cross-border payments volume, rose 21% from the prior-year quarter to $1 billion. Other revenues, earned through Visa Europe’s licensing fee, were $199 million, up 2% from the year-ago quarter. Client incentives – a contra-revenue item – came in at $670 million, and accounted for 16.0% of gross revenues.

Payments volume growth, on a constant dollar basis, was $1.3 trillion for the quarter, representing a year-over-year increase of 11%. Total processed transactions carrying the VisaNet brand increased 8% year over year to 18 billion. Cross-border volume, on a constant dollar basis, grew 8% from the prior-year quarter.

Total operating expenses rose 11% year over year to $1.3 billion, due to higher personnel, depreciation-amortization and general-administrative expenses.

Financial Update

As of Jun 30, 2015, cash and cash equivalents amounted to $2.15 billion, up from $1.97 billion as of Sep 31, 2014. Total assets increased to $39.4 billion from $38.6 billion at Sep 30, 2014. Total equity was $28.6 billion, up from $27.4 billion as of Sep 30, 2014.

Share Repurchase and Dividend Update

During the reported quarter, Visa repurchased about 15.5 million Class A common shares for a total cost of $1.1 billion and is left with $2.8 billion under the authorization.

On Jul 22, 2015, the board declared a quarterly dividend of 12 cents per share of Class A common stock, payable on Sep 1, to shareholders of record as of Aug 14.

Guidance

Visa reiterated the fiscal 2015 financial outlook of operating earnings per share growth in the mid-teens range. Annual net revenue growth is expected at low double digits, with an adverse foreign currency impact of about 2.5%.

Meanwhile, Visa expects annual operating margin in the mid 60% range. Further, Visa expects client incentives within 17.5−18.5% of gross revenue. Additionally, annual free cash flow is estimated at over $6 billion in fiscal 2015. The tax rate is likely in the 29–30% band.

Zacks Rank

Visa currently carries a Zacks Rank #3 (Hold).

Stocks to Consider

Other companies in the same sector that are expected to release earnings over the next few days re Euronet Worldwide, Inc. (EEFT - Free Report) , On Deck Capital, Inc. (ONDK - Free Report) and Global Payments Inc. (GPN - Free Report) . While Euronet carries a Zacks Rank # 1 (Strong Buy), both the other stocks carry a Zacks Rank #2 (Buy).

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