Riding on higher revenues, Visa Inc. (V - Free Report) reported first-quarter fiscal 2018 (ended Dec 31, 2017) earnings of $1.08 per share, beating the Zacks Consensus Estimate by 10.2%. Also, the bottom line improved 25.6% year over year.
Results were driven by continued growth in payments volume, cross-border volume and processed transactions.
Visa Inc. Price, Consensus and EPS Surprise
Net operating revenues of $4.86 billion surpassed the Zacks Consensus Estimate of $4.82 billion. Also, revenues climbed 9% year over year. This upside was primarily driven by consistent growth in payments volume, cross-border volume and processed transactions.
On a constant dollar basis, payments volume growth (for the quarter ended Sep 30, 2017) was up 10% year over year to $1.93 trillion. Cross-border volume growth, on a constant dollar basis, was up 9% in the quarter. Visa's processed transactions increased 12% over the prior year to 30.5 billion.
Service revenues increased 12% year over year to $2.15 billion on higher nominal payments volume. Notably, other revenue components are based on the reported quarter’s activity. Data processing revenues were up 13% on a year-over-year basis to $2.15 billion, while international transaction revenues grew 12% to $1.67 billion. Other revenues increased 13% year over year to $229 million.
Client incentives of $1.33 billion increased 27% from the prior-year quarter and represented 21.4% of gross revenues in the reported quarter. Growth in client incentives was due to incentives recognized on long-term customer contracts that were initiated or renewed after the first quarter of fiscal 2017 and overall growth in global payments volume.
Operating expenses increased 13% year over year to $1.54 billion, led primarily by increases in personnel expenses, general and administrative expenses, network and processing expenses, and professional fees as the company continues to invest to support growth.
Interest expense increased by 10% year over year to $154 million, primarily due to the issuance of $2.5 billion fixed-rate senior notes in September 2017.
Exchange rate shifts versus the prior year positively impacted earnings per share growth by approximately 1 percentage point.
Balance Sheet Strengthens
Cash, cash equivalents and available-for-sale investment securities were $8.14 billion as of Dec 31, 2017, down 17.6% from fiscal 2017 ended Sep 30, 2017.
Total assets were $67.2 billion as of Dec 31, 2017, down 1.2% from 2017 fiscal year ended Sep 30, 2017.
In the first quarter, the company generated adjusted free cash flow of $2.57 billion, up 11.2% year over year.
Share Repurchase and Dividend Update
During the reported quarter, the company returned $2.2 billion of capital to shareholders in the form of share repurchases and dividends.
The board of directors authorized a new $7.5-billion share repurchase program and increased the company’s quarterly cash dividend to 21 cents per share.
Visa kept unchanged part of its 2018 guidance provided earlier, and gave an improved outlook on tax rate and earnings per share growth led by U.S tax reform impact.
Guidance kept unchanged: The company continues to expect annual net revenue growth of high single digits on a nominal dollar basis, with approximately 0.5-1% of positive foreign currency impact; client incentives as a percentage of gross revenues from 21.5-22.5%; annual operating margin of high 60s.
It, however, expects annual operating expense growth in high end of mid-single digits (versus mid-single digits) adjusted for special items in fiscal 2017.
Improved Guidance: Effective tax rate of 23% from 29% as projected earlier, due to U.S tax reform. Earnings per share (EPS) growth of mid-50s (versus mid-40s earlier) on a GAAP nominal dollar basis and high end of mid-20s (high end of mid-teens) on an adjusted, non-GAAP basis (EPS includes approximately 1% to 1.5% of positive foreign currency impact and 9% to 10% of benefit from tax reform).
Visa’s results reflect robust performance. The company remains well positioned for growth on the back of a solid market position, increase in payment volumes, accretive acquisitions and significant opportunities from its secular shift toward electronic payments.
Zacks Rank & Other Stocks
Visa carries a Zacks Rank #3 (Hold). Among the other players in the same space, American Express Co. (AXP - Free Report) , Discover Financial Services (DFS - Free Report) and Mastercard Inc. (MA - Free Report) beat earnings by 2.6%, 1.31% and 1.8%, respectively, in the October-December 2017 quarter. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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