) fourth-quarter 2011 operating earnings per share of $4.03 came in
drastically ahead of the Zacks Consensus Estimate of $3.90 and
$3.16 in the year-ago quarter. Net income for the reported quarter
stood at $515 million, spiking 23.7% from $415 million in the
However, including an after-tax charge of $495 million ($770
million, pre-tax) related to the U.S. merchant litigations,
MasterCard reported net income of $19 million or 15 cents per share
during the reported quarter. No such special items were recorded in
the year-ago period.
Results for the reported quarter improved over the prior-year
quarter primarily due to better pricing, an increased number of
processed transactions and strong gross dollar value (
) growth. However, a higher lower tax rate and operating expenses
along with the merchant litigation expense were the downsides.
Total revenue surged 20.2% year over year to $1.73 billion, also
slightly beating the Zacks Consensus Estimate of $1.72 billion. On
a constant currency basis, net revenue increased 20.8%, while
excluding acquisitions, net revenue grew about 18.0%. The upside
was primarily due to a 23.2% growth in the number of processed
transactions to 7.7 billion along with a 17.5% increase in
During the reported quarter, GDV increased 16.3% to $863 billion
while worldwide purchase volume climbed 15.2% year over year, on a
constant currency basis, to $648 billion. As of December 31, 2011,
MasterCard issued 1.8 billion MasterCard-and Maestro-branded
Total operating expenses increased 100.1% year over year to
$1.74 billion. Currency fluctuations had minimal impact on
operating expenses. The overall increase primarily resulted from a
$770 million (pre-tax) of provision for litigation settlement along
with a 14.3% increase in general and administrative expenses. While
advertising and marketing expenses climbed 4.8%, depreciation and
amortization expenses grew 23.8% from the year-ago quarter.
Besides, excluding merchant litigation expense, total operating
expenses increased 11.5% over the prior-year quarter, while
operating income escalated 33.5% in the reported quarter. However,
operating margin rose 44.0%, modestly up from 39.6% in the year-ago
MasterCard's effective tax rate for the reported quarter was
32.3%, modestly higher than 28.7% in the year-ago period, primarily
attributable to a benefit recorded in the year-ago quarter,
partially offset by a favourable geographic mix of earnings in
Full-Year 2011 Highlights
For full-year 2011, MasterCard recorded operating net income of
$2.4 billion or $18.70 per share as compared with $1.85 billion or
$14.05 per share in 2010. Operating earnings per share also
exceeded the Zacks Consensus Estimate of $18.57 per share. However,
including the charge related to the U.S. merchant litigations in
the reported quarter, reported net income stood at $1.9 billion or
$14.85 per share.
Total revenue surged 21.2% year over year to $6.71 billion, in
line with the Zacks Consensus Estimate, while excluding
acquisitions, net revenue grew about 19%. Excluding acquisition and
merchant litigation-related expense, total operating expenses
increased 10.0% over 2010.
Operating income increased 26.6% over 2010, while operating
margin rose 51.9%, modestly up from 49.7% in the 2010. Effective
tax rate stood at 31.8% in 2011 against 33.0% in 2010.
As of December 31, 2011, MasterCard's net operating cash flow
grew to $2.7 billion, up from $1.7 billion as of December 31, 2010.
At the end of 2011, cash and cash equivalents increased to $3.73
billion from $3.07 billion at the end of 2010 while the long
term-debt was nil.
Meanwhile, retained earnings increased to $4.75 billion in 2011
from $2.92 billion at the end of 2010. Total equity grew to $5.88
billion from $5.22 billion as of December 31, 2010.
Share Repurchase Update
During the reported quarter, MasterCard repurchased about 84,300
million shares for $30 million. The company bought back 4.4 million
shares for about $1.1 billion in 2011. Until January-end,
MasterCard has already bought about an additional 304,600 shares
for approximately $106 million since the fourth quarter of
On April 12, 2011, MasterCard approved and authorized the
extension of its stock repurchase program to $2 billion from $1
billion. To date, about $746 million of stock remains available
under the current repurchase program authorization.
On December 6, 2011, the board of MasterCard announced a
quarterly cash dividend of 15 cents per share to shareholders of
its Class A common stock and Class B common stock. The dividend
will be payable on February 9, 2012 to the respective shareholders
of record as on January 9, 2012.
On November 9, 2011, MasterCard paid its quarterly cash dividend
of 15 cents per share to shareholders of its equity classes of
record as on October 10, 2011.
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. 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 expenses, the
detrimental effects of the Consumer Protection Act in the U.S. and
scope for increasing cash flow. Hence, the cautious outlook over
the near term justifies our Neutral recommendation.
Besides, MasterCard's prime peer,
) is slated to report is fiscal first quarter 2012 (ended December
31, 2011) financial results after the market closes on February 8,
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