Mastercard (MA) Q4 Earnings Beat Estimates As Revenues Rise

Mastercard Inc. (NYSE:MA) reported fourth-quarter 2017 earnings per share of $1.14, beating the Zacks Consensus Estimate of $1.12. Also, the bottom line grew 33% year over year.

Mastercard Incorporated Price, Consensus and EPS Surprise

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

Shares gained 3.07% in the pre-market trading session reflecting the outperformance.

Strong Operational Performance

Mastercard's revenues of $3.31 billion exceeded the Zacks Consensus Estimate of $3.26 billion. The figure was also up 20% year over year. This upside was primarily driven by a 17% rise in the number of switched transactions to 16.7 billion along with a 17% increase in cross-border volumes, 13% growth in gross dollar volume and 3% from acquisitions. These were however, partially offset by higher rebates and incentives, mainly due to new and renewed agreements and increased volumes.

About 2.4 billion Mastercard and Maestro branded cards were issued as of Dec 31, 2017.

Mastercard witnessed 17% year-over-year increase in total adjusted operating expenses to $1.6 billion due to higher cost components like general and administrative expenses plus advertising and marketing costs.

Investment income rose 9% while interest expenses increased 36.7% year over year to $41 million.

Adjusted operating margin expanded 120 basis points year over year to 51%.

Full-Year Highlights

Operating earnings of $4.59 per share for 2017 beat the Zacks Consensus Estimate of $4.56. However, the bottom line rose 21% over 2016.

Revenues of $12.5 billion were in line with the consensus mark and improved 16% year over year.

Financial Update

As of Dec 31, 2017, the company’s cash and cash equivalents were $5.9 billion, up 11.7% from the level at year-end 2016. Long-term debt increased 4.7% to $5.4 billion from the mark at 2016-end.

Share Repurchase and Dividend Payment

During the reported quarter, Mastercard repurchased shares worth $1 billion and returned $233 million in dividends. This brings the full-year tally to share repurchase of worth $3.8 billion and $942 million of dividend paid.

The company bought back shares worth $287 million in January 2018 and has $5 billion remaining under its buyback authorization.

Our Take

Mastecard’s results reflect its strong operating performance, driven by its continued efforts to cater superior service to its customers. Its acquisitions, investments in technology, a number of deals and partnerships signed with clients across the globe are expected to consistently aid its transaction volume growth, thus driving up the top line.

Moreover, increasing use of plastic money replacing cash provides ample room for the company’s growth. Its strong balance sheet and disciplined capital management strategy are the other positives.

Zacks Rank

Mastercard carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Financial Transaction Service Providers

Among the other financial transaction service providers, the bottom line of Alliance Data Systems Corporation (NYSE:ADS) and Total System Services, Inc. (NYSE:TSS) beat the respective Zacks Consensus Estimate in the fourth quarter. Another card major Visa Inc. (NYSE:V) will report first-quarter fiscal 2018 earnings on Feb 1 after the market closes. The Zacks Consensus Estimate for the period is pegged at 98 cents, up 13.9% year over year.

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