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Mastercard's (MA) Q1 Earnings Beat on Transaction Growth

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Mastercard Incorporated (MA - Free Report) reported adjusted earnings of $1.78 per share, beating the Zacks Consensus Estimate of $1.66. Earnings improved 18.7% year over year. Improved revenues drove the earnings upside.

Better-than-expected results were primarily backed by higher switched transactions, increase in cross-border volume and gross dollar volume, and gains from acquisitions. An increase in rebates and incentives year over year was a partial dampener.

Strong Operational Performance

Mastercard’s revenues of $3.89 billion surpassed the Zacks Consensus Estimate by 0.6%. The same was up 8.6% year over year.

Total adjusted operating expenses rose 2% to $1.7 billion, due to company’s continued investments in strategic initiatives. Interest expenses of $46 million increased 7% year over year.

Operating margin expanded 270 basis points to 56.9%.

Mastercard Incorporated Price, Consensus and EPS Surprise

Gross dollar volume increased 12% to $1.5 trillion while cross-border volumes were up 13% on a local-currency basis.

The company’s margins gained from a lower tax rate of 15.5% in the first quarter compared with 17.3% in the year-ago quarter.

As of Mar 31, 2019, the company’s customers had issued 2.5 billion Mastercard and Maestro-branded cards.

Financial Update

As of Mar 31, 2019, the company’s cash and cash equivalents were $5.86 billion, down 12.3% year over year. Long-term debt was $5.8 billion, almost unchanged relative to Dec 31, 2018 levels.

Share Repurchase and Dividend Payment

During the reported quarter, Mastercard repurchased shares worth $1.8 billion and returned $340 million in dividends.

Our Take

Mastercard  is poised for growth, given its solid market position, ongoing expansion and digital initiatives, plus significant opportunities from the secular shift toward electronic payments. Its numerous acquisitions have aided revenue growth.

However, escalating costs will put pressure on the company’s bottom line. In order to gain customers and new business, Mastercard has been incurring quite high levels of costs under rebates and incentives, which remains a concern. Nevertheless, its strong balance sheet enables business investment, thereby driving growth.

Zacks Rank and Other Stocks

Mastercard carries a Zacks Rank #3 (Hold).

Here are some companies in the financial transaction services sector that have the right combination of elements to post an earnings beat this quarter:

Square, Inc. (SQ - Free Report) has an Earnings ESP of +5.5% and a Zacks Rank #3.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

PayPal Holdings, Inc. (PYPL - Free Report) has an Earnings ESP of +0.53% and a Zacks Rank #2 (Buy).

FleetCor Technologies, Inc. (FLT - Free Report) has an Earnings ESP of +0.38% and a Zacks Rank #2.

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