This summary is based on the first quarter fiscal 2008 earnings call conducted by MasterCard Incorporated (MA) on April 29, 2008.
Management:
Investor Relations: Barbara Gasper
President, Chief Executive Officer, Director: Robert W. Selander
Chief Financial Officer: Martina Hund-Mejean
Key Investors Issues
- EPS were $3.38 a share compared to $1.57 a share last year.
- Net income was $446.9 million compared to $214.9 million a year earlier.
- Net revenue was $1.2 billion, up over 29% from the first quarter of 2007.
First Quarter Highlights
Net income was $398 million, or $3.01 per share, excluding a special item.
- The item was a $49 million after-tax gain from the termination of a customer business agreement, which represents 37 cents per share.
- Net income also includes after-tax gains of $56 million, or 42 cents per share, from sales of investment in Redecard. The company has sold all of its Redecard shares.
Net revenue was $1.2 billion, up over 29% from the first quarter of 2007.
- This was driven primarily by a strong growth in gross dollar volume and process transactions, including cross border volumes, which grew 23.6%. Currency fluctuations of the Euro and the Brazilian Real relative to the U.S. dollar contributed 5.1 percentage points of the net revenue increase, resulting in underlying business growth of 24.1%. Approximately 6 percentage points of this was due to pricing changes.
- Operating income of $516 million resulted in an operating margin of 43.6%, a 9.3 percentage point improvement over the first quarter last year. Strong revenue growth enabled the company to leverage operating margin. The margin contribution from revenue growth was three times as much as the offsetting impact from expense growth. The contribution from foreign exchange was about 1 percentage point.
The slowdown in the U.S. economy has had some effect on U.S. growth.
- However, the trends seen over the past few quarters have continued and have led to strong global growth for MasterCard.
- These trends include first, in the U.S. a consumer shift away from discretionary purchases, such as luxury retail and home furnishings, to non-discretionary purchases, including food and gasoline, which have also been infected by commodities price increases.
- Second, the company continues to see double-digit growth in markets outside the United States, where the company generates about half of its revenue.
- Third, cross-border volume trends are still quite healthy and last, the secular shift from paper to electronic payments.
The company announced the launch of its integrated processing solutions, or IPS debit processing platform.
IPS provides banks with a suite of branded debit network and card issuer processing services, including PIN, signature, ATM driving, and expanded rewards capabilities. Security Service Federal Credit Union will be the first customer to implement IPS.
The company sold the remaining share of Redecard and realized pretax gains of approximately $86 million during the period.
- These gains have been recorded as investment income on income statement.
- The company repurchased approximately 1.5 million shares of class A common stock for an aggregate of $294 million, or approximately $196 per share. Through April 29th, the company repurchased approximately $557,000 additional shares of its class A common stock at a cost of $129 million. In total, $1.02 billion of the approved $1.25 billion repurchase program has been completed. Additionally, in February board of directors authorized the conversion of up to 13.1 million shares of class B stock into class A stock during 2008. Although no conversions have taken place thus far this year, the first 2008 conversion program, for up to 13.1 million shares, is expected to begin on May 17th and may continue through June 13th.
Gross dollar volume grew 14.1% on a local currency basis and 20% on a U.S. dollar converted basis to $611 billion.
- Despite the economic downturn in the U.S., U.S. GDV growth was 8.9%, and U.S. purchase volume growth was even stronger at 10.3%.
- Worldwide purchase volume was up 15% and cash volume was up 11.6%, both on a local currency basis. Additionally, cross-border volume, or the volume that is generated from cardholders who travel outside of the country where the card is issued, was up 23.6%.
- Processed transactions, or the transactions processed across MasterCard''s network, increased 15.7% to 4.9 billion. The company continues to benefit from the global diversification of business and ability to generate volume, transactions, and revenue from economies outside of the U.S. where economic conditions are generally more favorable than in the U.S.
- Net revenue yield was 19.4 basis points versus 18 basis points in the first quarter of 2007. The improvement in revenue yield can be primarily attributed to pricing changes and underlying business growth.
