Visa (V +0.17%) reported results for its fiscal 2015 third quarter after the market close today, and the payment titan's revenue and earnings exceeded Wall Street's expectations. Investors cheered the news, and as of 6:00 p.m., shares are up more than 5% in after-hours trading.
Revenue rose 12% (and 14% excluding the effects of currency fluctuations) year over year to $3.5 billion, driven by strong growth in service, data processing, and international transaction revenues. Analysts were projecting $3.4 billion in revenue.
Service revenues rose 9% to $1.6 billion. Data processing revenues increased 6% to $1.4 billion. And international transaction revenues grew 21% over the prior year to $1.0 billion. Other revenues were $199 million, an increase of 2% over the prior year.
Payments volume, on a constant dollar basis, increased 11% to $1.2 trillion. Cross-border volume, again on a constant dollar basis, rose 8%.
Total processed transactions were 18 billion, an 8% increase over the prior year. This included a 2% negative impact from the loss of Russian domestic transaction processing as a result of recent changes in Russian National Payment System law.
Total operating expenses increased 11% to $1.3 billion for the quarter, primarily related to an increase in personnel expenses and ongoing investments in technology.
All told, adjusted net income for the quarter surged 33% to $1.8 billion. Earnings per share, boosted by share repurchases, leapt an even higher 36% to $0.74. That was significantly higher than the $0.58 in EPS Wall Street was expecting.
Cash and capital return program
Visa earns a small fee from every transaction that passes through its payment network, and its tollbooth-like business model produces enormous amounts of free cash flow, including more than $4.5 billion in the first nine months of 2015. That's allowed the company to maintain a fortress-like balance sheet -- with no debt and cash and investments totaling $8 billion at the end of the quarter -- while also retuning cash to shareholders in the form of steadily rising dividends and share buybacks.
During the third quarter, Visa used $1.1 billion of that cash to repurchase 15.5 million shares at an average price of $68.05 per share. And through the nine months ended June 30, 2015, the company repurchased a total of 44.1 million shares of at an average price of $65.98 per share, for a total of $2.9 billion. With $2.8 billion of remaining funds in its current capital return program, expect Visa to continue to gobble up its own shares in the quarters ahead.
A soon-to-be-completed deal with Visa Europe?
Visa said its was having discussions with its former subsidiary, Visa Europe, in hopes of consummating a potential merger. "There is compelling logic for both Visa and Visa Europe to consummate a business combination," said the company in a press release. Visa expects to conclude the talks by October, although it offered no assurances that a transaction will be completed.
Guidance
Visa reaffirmed its fiscal full-year guidance for operating margin in the "Mid 60s" and free cash flow greater than $6 billion.
Management also updated its outlook for constant dollar revenue growth of "low double digits" to include 2.5 percentage points of negative foreign currency impact, up from a previous estimate of 2.0 percentage points. And management raised its projections for adjusted earnings-per-share growth to "mid-teens range," up from the previously stated "low-end of the mid-teens range."
"We continue to deliver solid financial results and operating metrics without the help of an improving economic environment, said CEO Charlie Scharf in a press release. "Strong underlying fundamentals continue to offset the drag from geopolitical tension and the strengthening dollar on our business."
