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MasterCard Earnings Outshine, Margins Up

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MasterCard Inc.’s (MA - Free Report) first-quarter 2013 operating earnings per share of $6.23 comfortably surpassed the Zacks Consensus Estimate of $6.19. Results significantly beat the year-ago quarter’s earnings of $5.36 as well.

Net income for the reported quarter stood at $766 million, up 12.3% from $682 million in the prior-year quarter. No special items were recorded in the reported quarter.

The better-than-expected results were largely due to the outcome of better pricing, increased number of processed transactions, strong gross dollar value (GDV) growth and marginal growth in tax rate, which further led to higher-than-expected operating cash flow. Modest growth in operating expenses also supported the margins’ upside.

Total revenue grew 8.4% year over year to $1.91 billion, although it marginally lagged the Zacks Consensus Estimate of $1.93 billion. On a constant currency basis, net revenue increased 9%. The upside was primarily due to a 12% jump in the number of processed transactions to 8.7 billion along with a 16% increase in cross-border volumes.

During the reported quarter, GDV increased 12% to $947 billion, while worldwide purchase volume rose 10% year over year, on a constant currency basis, to $690 billion. As of Mar 31, 2013, MasterCard had issued 1.9 billion MasterCard-and Maestro-branded cards.

Total operating expenses climbed 5.4% year over year to $799 million. The overall increase primarily resulted from a 14.8% year-over-year upsurge in depreciation and amortization expenses along with a 5% uptick in general and administrative expenses. Moreover, advertising and marketing expenses climbed 3.2% year over year to $129 million.

Subsequently, operating income increased 10.7% year over year to $1.11 billion in the reported quarter. Likewise, operating margin rose to 58.1% from 56.9% in the year-ago quarter. MasterCard's effective tax rate for the reported quarter was 30.5%, lower than 31.8% in the year-ago period.

Financial Update

As of Mar 31, 2013, MasterCard’s net operating cash flow significantly escalated 104.2% year over year to $872 million. At the end of Mar 2013, cash and cash equivalents slightly reduced to $1.98 billion from $2.05 billion at 2012-end, while long-term debt remained nil.

Meanwhile, retained earnings increased to $8.05 billion at the end of Mar 2013 from $7.35 billion at 2012-end. However, total equity dipped to $6.76 billion from $6.93 billion as of Dec 31, 2012.

Share Repurchase Update

On Feb 5, 2013, the board approved a new share repurchase program worth $2.0 billion, which has now become effective.

Accordingly, during the reported quarter, MasterCard repurchased about 1.48 million shares for $766 million. This completed the previous $1.5 billion stock buyback program announced in Jun 2012. Until Apr-end, MasterCard has bought back an additional 341,500 shares for approximately $182 million since the first quarter of 2013.

Till date, about $1.7 million of stock remains available under the latest $2.0 billion share repurchase program authorization.

Dividend Update

On Feb 5, 2013, the board of MasterCard declared 100% hike in its regular quarterly dividend of 30 cents per share to 60 cents a share. The increased dividend will be payable on May 9, 2013 to shareholders of record as on Apr 9, 2013.

On Feb 8, 2013, MasterCard paid a regular cash dividend of 30 cents per share, announced in Dec 2012, to shareholders of its Class A common stock and Class B common stock as on Jan 9, 2013.


On Tuesday, MasterCard’s peer – Fiserv Inc. (FISV - Free Report) – a Zacks Rank #2 (Buy) stock – reported first-quarter 2013 operating earnings of $1.33 per share, in line with the Zacks Consensus Estimate and 13% higher than the year-ago quarter’s earnings of $1.18 per share. Results benefited from higher top line growth, partially offset by higher operating expenses.

Another payment processor rival Visa Inc. (V - Free Report) is slated to release its results today after the closing bell. Both MasterCard and Visa carry a Zacks Rank #3 (Hold).

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