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Visa Earnings: Modest Beats on Good News

By Eric Volkman - May 1, 2015 at 3:00PM

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The credit card giant's quarterly numbers slightly outpaced forecasts.

Payment card network operator Visa (V -0.39%) yesterday reported fiscal second-quarter results that slightly outpaced expectations. In spite of that, the stock traded down in the wake of the news. Here's a look at the key particulars.

Bare beats
For the quarter, Visa's revenue came in at $3.41 billion, up nearly 8% on a year-over-year basis. Net profit was $1.55 billion, a bit down from the $1.60 billion recorded in second-quarter 2014. On a per-share basis, the bottom line was $0.63, the same as in the year-ago quarter.

Both represented modest beats on expectations. Collectively, analysts were anticipating a top line of $3.34 billion and EPS of $0.62.

As a company with a huge global footprint, Visa is susceptible to currency movements. The recent strengthening of the U.S. dollar affected results and dampened net revenue growth by about 2.5 percentage points, according to Visa.

As the top card payments network on Earth, the company is benefiting from a flood of transactions across the planet. Its total payment volume advanced by 11% on a year-over-year basis, to $1.2 trillion. That was roughly similar to the increase MasterCard reported in its first-quarter results on Wednesday.

Judging by how Visa's stock traded after hours in the wake of the earnings announcement, investors weren't particularly impressed by any of this. The shares were down $1.29, or by almost 2%, after the results were announced yesterday.

Major merchant move
For companies the size and scope of Visa, the market tends to attach significant importance to quarterly numbers.

The card giant's shares rallied late last year and have yet to come down to any meaningful extent. So it's likely that some are starting to feel that the advanced stock price warrants more convincing earnings beats and higher growth.

They also seem to be dismissing one key positive development from the second quarter. In early March it was announced that huge retailer Costco Wholesale (COST -0.15%) had tapped Visa to be the exclusive credit card brand accepted at its stores (although this won't apply to debit cards; the retailer accepts all major brands). Visa, in conjunction with issuer Citigroup, will also be the network of choice for Costco's proprietary credit card.

In both cases, Visa replaces rival American Express. The Visa/Citigroup arrangement will kick in after the existing AmEx deal expires next April.

Costco is a good place to have exclusivity. Its 2014 revenue was over $112 billion; we can assume that given its growth over the years, the retailer will add to that figure going forward. Visa, with over 280 billion cards in circulation worldwide, will be the noncash payment instrument of choice for a healthy percentage of the total.

As a payments processor (as opposed to the issuer lending credit), Visa only takes a sliver of every transaction, but this becomes significant when a merchant is bringing in take amounting to hundreds of billions of dollars every year.

Better months ahead?
Visa reaffirmed its existing revenue guidance for fiscal 2015. The company anticipates revenue growth in the low double-digits, with the strong U.S. dollar negatively impacting that figure by 2 percentage points or so.

Management updated its forecast for diluted EPS -- it now expects this to rise at the "low-end of the mid-teens range."

That means, for the full year, Visa should show some pronounced growth going into that big new arrangement with Costco. Perhaps this will give some lift to its share price, in contrast to the initial reaction to the second quarter's set of results.

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Stocks Mentioned

Visa Inc. Stock Quote
Visa Inc.
$196.12 (-0.39%) $0.77
Costco Wholesale Corporation Stock Quote
Costco Wholesale Corporation
$478.58 (-0.15%) $0.70

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