Visa Inc.‘s (V) fiscal first-quarter 2012 (ended December 31, 2011) operating earnings of $1.49 per Class A common share were triple pennies ahead of the Zacks Consensus Estimate. Results also substantially exceeded $1.23 per share reported in the year-ago quarter, primarily based on lower share count.
Visa’s GAAP net income for the quarter stood at $1.03 billion, climbing 16.4% from $884 million in the year-ago quarter. Besides, operating income escalated 18.4% year over year to $1.62 billion. Meanwhile, total GAAP operating expenses rose 6.5% year over year to $929 million, whereas the effective tax rate was 36% in the reported quarter.
Alongside, total operating revenues for the reported quarter were $2.55 billion, up 13.8% from $2.24 billion in the year-ago quarter and the Zacks Consensus Estimate of $2.47 billion. While growth was driven by strong performance across all segments, currency fluctuations contributed a positive 1% to the top line.
Service revenues increased 14.2% year over year to $1.15 billion and are recognized based on payments volume in the prior quarter. All other revenue categories are recognized based on current quarter activity. Data processing revenues improved 12.7% over the prior-year period to $951 million.
Besides, International transaction revenues, driven by cross-border payments volume, grew 18.7% over the prior-year quarter to $748 million. Other revenues, earned through Visa Europe’s licensing fee, were $178 million, climbing 10.6% over the year-ago quarter. Client incentives, which are a contra-revenue item, were $481 million, representing 15.9% of gross revenues.
On a constant dollar basis, payments volume increased 11% year over year to $994 billion. Total processed transactions carrying the Visa brand increased 8% year over year to 13.6 billion. Cross border volume, on a constant dollar basis, grew 13% year over year.
Financial Update
As of December 31, 2011, cash and cash equivalents, restricted cash and available-for-sale investment securities totaled $7.9 billion, up from $6.9 billion as of September 30, 2011, including $4.4 billion of restricted cash for litigation escrow. Nevertheless, long-term debt remained nil.
Total shareholders’ equity was recorded at $27.3 billion, up from $26.4 billion as of September 30, 2011. Besides, Visa’s operating cash flow surged to $1.29 billion in the reported quarter from $1.0 billion as of December 31, 2010.
Share Repurchase Update
During the reported quarter, Visa reduced its total as-converted class A common stock by 16.2 million shares, which was funded from $1.6 billion of operating cash on hand. Besides, the company repurchased class A common stock worth $75 million, through open market operations, which was included in $1.6 billion.
Moreover, Visa deposited $1.57 billion from operating cash into the litigation escrow account previously established under the retrospective responsibility plan. This deposit has the same economic effect on earnings per share as repurchasing the company’s class A common stock as it reduces the as-converted class B common stock share count.
Concurrently, the board of Visa also authorized a new $500 million class A share repurchase program, slated to expire by February 1, 2013.
Previously, in October 2011, the company had also sanctioned a new $1 billion class A share repurchase program, which is expected to expire on July 20, 2012.
Guidance
Visa also revised its financial outlook for fiscal 2012, now anticipating annual net revenue growth to be in the low double-digits range, higher than prior high single-digit to low double-digits range. Besides, annual earnings per share growth are now estimated to grow in the high teens from the prior middle-to-high teens range.
However, Visa reiterated other financial projections for 2012. The company continues to estimate annual operating margin of about 60%, capital expenditure within $350-400 million and annual free cash flow of over $4 billion.
Further, the company expects client incentives within the range of 17-18% of gross revenue and marketing expenses to be less than $1.0 billion. While GAAP tax rate within 30-31%, adjusted tax rate is projected within 33-34%.
Dividend Update
Concurrently, the board of Visa declared a quarterly dividend of 22 cents per share of class A common stock payable on March 6, 2012, to the company’s Class A, Class B and Class C common shareholders of record as on February 17, 2012.
Besides, on December 6, 2011, the board of Visa declared a quarterly dividend of 22 cents per share to its respective common shareholders of record as on November 18, 2011. This marked a 47% hike from the prior dividend payout of 15 cents per share.
Our Take
Visa continues to drive growth through increased payment volumes along with consistent growth in processed transactions. The company benefits from strong secular demand growth, meaningful international exposure, high barriers to entry, excellent pricing power and impressive operating leverage.
Although regulatory compliances as a result of the ongoing financial overhaul in the U.S. and litigation are expected to weigh on the financials of the company in fiscal 2012, Visa aims to retain its strength by exploring newer growth avenues that include mobile, eCommerce and money transfer services. The company is also generating strong cash flow and maintains a healthy capital position.
Last week, Visa’s prime peer, MasterCard Inc. (MA), reported fourth-quarter 2011 operating earnings per share of $4.03, which came in substantially 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 prior-year quarter.
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 (GDV) growth. However, a higher tax rate and operating expenses along with the merchant litigation expense were the downsides.
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