) third-quarter 2012 operating earnings per share of $6.17
noticeably outpaced the Zacks Consensus Estimate of $5.93 and the
year-ago quarter's earnings of $5.63, primarily based on low
Net income for the reported quarter stood at $772 million,
climbing 7.8% from $717 million in the prior-year quarter. No
such special items were recorded in both the comparable
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 lower
tax rate. However, higher-than-expected operating expenses
partially limited the margins' upside.
Total revenue grew 5.5% year over year to $1.92 billion,
although it marginally fell short of the Zacks Consensus Estimate
of $1.94 billion. On a constant currency basis, net revenue
increased 10.0%. The upside was primarily due to a 24.0% jump in
the number of processed transactions to 8.7 billion along with a
14.0% increase in cross-border volumes.
During the reported quarter, GDV increased 14.0% to $918
billion, while worldwide purchase volume rose 12.0% year over
year, on a constant currency basis, to $676 billion. As of
September 30, 2012, MasterCard issued 1.9 billion MasterCard- and
Total operating expenses increased 4.7% year over year to $854
million. On a constant currency basis, operating expenses
increased 8.0% over prior-year period.
The overall increase primarily resulted from a 13.7%
year-over-year upsurge in depreciation and amortization expenses
along with a 9.7% increase in general and administrative
expenses. However, advertising and marketing expenses fell 12.0%
year over year to $176 million.
Consequently, operating income rose 6.2% year over year to
$1.06 billion in the reported quarter. Moreover, operating margin
marginally rose to 55.5% from 55.1% in the year-ago quarter.
MasterCard's effective tax rate for the reported quarter was
27.6%, quite lower than 30.5% in the year-ago period, primarily
attributable to a benefit from deduction related to software and
additional export incentives.
As of September 30, 2012, MasterCard's net operating cash flow
increased 9.6% year over year to $2.08 billion. At the end of the
reported quarter, cash and cash equivalents slightly reduced to
$3.05 billion from $3.73 billion at 2011-end, while the long-term
debt remained nil.
Meanwhile, retained earnings increased to $6.79 billion at the
end of the reported quarter from $4.75 billion at the end of
2011. Total equity rose to $6.92 billion from $5.88 billion as of
December 31, 2011.
Share Repurchase Update
On June 5, 2012, the board of MasterCard sanctioned a new $1.5
billion share repurchase program for its Class A common stock.
The new share repurchase program has become effective now that
the previous $2 billion share repurchase program has been
completed in the reported quarter, which was expanded from $1
billion in April 2011.
Accordingly, during the reported quarter, MasterCard
repurchased about 0.5 million shares for $216 million. Until
October-end, MasterCard has bought back an additional 255,000
shares for approximately $119 million since the third quarter of
2012. Till date, about $1.1 million of stock remains available
under the latest $1.5 billion share repurchase program
On September 11, 2012, the board of MasterCard announced a
regular cash dividend of 30 cents, which will be paid on November
9, 2012, to shareholders of its Class A common stock and Class B
common stock as on October 10, 2012.
On August 9, 2012, MasterCard paid a regular cash dividend of
30 cents to shareholders of its Class A common stock and Class B
common stock as on July 9, 2012.
MasterCard's prime peer,
) is also scheduled to release its fiscal fourth quarter earnings
after the closing bell today.
MasterCard benefits from strong secular demand growth,
meaningful international exposure, diversified product portfolio,
high barriers, excellent pricing power, risk-free balance sheet
and impressive operating leverage. The recent strategic
acquisitions and alliances also bode well for long-term growth.
Also, the above-average earnings growth, strong competitive
position and leverage to an eventual economic recovery will
result in a relative valuation premium.
However, we are concerned about MasterCard's resilience and
ability to raise prices, increased operating and litigation
expenses, the detrimental effects of the Consumer Protection Act
in the U.S. and scope for increasing cash flow. Based on these
factors, MasterCard carries a Zacks Rank #2, which implies a
near-term Buy rating, while our long-term recommendation remains
MASTERCARD INC (MA): Free Stock Analysis
VISA INC-A (V): Free Stock Analysis Report
To read this article on Zacks.com click here.