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Visa Inc. Weathers the FX Storm

By Joe Tenebruso - Jan 29, 2016 at 3:03PM

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A stronger U.S dollar dented the payment titan's Q1 results, but this long-term growth story remains fundamentally intact.

Image source: Visa.

Visa (V 0.12%) reported fiscal first-quarter results on Jan. 28, 2015. While foreign currency headwinds are taking a toll on its results, the payments technology company continues to benefit from the global trend toward electronic payments.

Visa results: The raw numbers

 

Q1 2016

Q1 2015

Growth (YOY)

Revenue

$3.565 billion

$3.382 billion

5.4%

Net Income

$1.941 billion

$1.569 billion

23.7%

Earnings Per Share

$0.80

$0.63

27%

Data source: Visa Q1 2016 earnings press release.

What happened with Visa this quarter?
Revenue rose 5% (and 8% excluding the effects of foreign exchange rate fluctuations) year over year to $3.6 billion, driven by solid growth in service, data processing, and international transaction revenues.

Service revenues grew 7% to $1.6 billion, as payments volume increased 12% on a constant dollar basis to $1.3 billion. Data processing revenues rose 7% to $1.5 billion, with the number of transactions process on Visa's network increasing 8% to 19 billion. International transaction revenues grew 6% to $1 billion, and other revenues came in at $198 million, a decrease of 3% over the fourth quarter of 2014.

Client incentives, which are a contra revenue item, were $788 million. That represented 18.1% of gross revenues, up from 17.4% in the prior-year period

Total operating expenses increased only 2% to $1.2 billion, as Visa prioritized cost controls during the quarter due to the increasingly challenging macroeconomic environment. That helped operating margin improve to 67% from 66% in the first quarter of 2015, with operating income increasing 7% to $2.4 billion.

Adjusted net income, which excludes certain non-cash items, rose 7% to $1.7 billion. And adjusted earnings per share, boosted by share buybacks, increased 10% to $0.69.

Looking forward
Management continues to expect fiscal full-year 2016 constant dollar revenue growth in the high-single-digit to low-double-digit range with foreign currency likely to lower revenue growth by 3 percentage points.

The company also maintained its guidance for full-year constant dollar adjusted earnings-per-share growth at the low end of the mid-teens range with an expectation of about 4 percentage points of negative foreign currency impact. Annual free cash flow projections remained at about $7 billion.

"We continue to be pleased with our financial performance given the uneven global economy and the ongoing negative effects of the strong U.S. dollar," said CEO Charlie Scharf in a press release. "While these headwinds do not appear to be abating in the short-term as we had hoped, the fundamentals of our business remain strong and our long-term growth trajectory remains intact as we navigate through this uncertain environment."

Joe Tenebruso has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Visa. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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