As investors, it's easy to get hung up on one particular aspect of a company's performance. For MasterCard (MA -0.88%), one of the biggest issues that the card giant has had to face is the impact of weak foreign currencies on its financials. Coming into Thursday's first-quarter financial report, MasterCard investors were prepared to see earnings per share take a hit compared to year-ago levels, but that hadn't stopped the stock from climbing toward all-time highs. MasterCard's results included the expected decline, but most of the signs of the card company's fundamental strength remain intact. Let's look more closely at how MasterCard fared and whether investors will get any relief from the pressures affecting the stock in the future.
MasterCard sees healthy growth nearly everywhere
MasterCard's first-quarter results revealed many of the headwinds that the company has faced lately. Revenue stayed on its upward trajectory, rising 10% to $2.45 billion and easily topping the $2.38 billion consensus forecast among those following the stock. However, net income fell 6% to $959 million, and despite a drop in outstanding share counts, earnings came in at $0.86 per share, down from last year's $0.89 per share performance. MasterCard's earnings did beat investor expectations by a penny.
Looking more closely at MasterCard's numbers, several factors weighed on its bottom line. Currency impacts had about a 4 percentage point effect on earnings, and so on a currency-neutral basis, net income fell just 2% and earnings per share would actually have risen by 1%. In addition, MasterCard said that as it had expected, a specific tax credit's disappearance and a balance-sheet adjustment related to the Venezuelan market hurt earnings by $0.08 per share during the quarter.
Yet all of MasterCard's fundamental results continued to reflect solid and substantial growth. Cross-border volumes grew at a 12% pace, while gross dollar volumes on a local currency basis climbed 13% to $1.1 trillion. Processed transaction counts jumped 14% to 12.6 billion. Worldwide purchase volumes gained 12% in local currency terms, working out to $838 billion, and 2.3 billion MasterCard-issued cards were in customers' hands.
Performance across MasterCard's geographical segments continued to favor the international markets, although the gap narrowed somewhat. Canada was the weakest link in the MasterCard network, showing only single-digit percentage increases in gross dollar volume and purchase volume. Europe and Latin America led the way with figures in the 14% to 18% range, and the Asia-Pacific, Middle East, and Africa segment also posted solid growth rates of around 13%. In the U.S., gross dollar volume growth of 9.8% and purchase volume growth of 10.3% held back the company overall, but the figures were higher than they've been in recent quarters.
One thing that held back MasterCard's earnings was a big increase in operating expenses. The 25% boost came in part from differences in the way that foreign exchange adjustments were made between the most recent and year-ago quarters, and greater investments to support strategic initiatives affected MasterCard this year.
Can MasterCard get back its earnings growth?
CEO Ajay Banga downplayed any concerns about MasterCard's earnings. "The year is off to a good start with solid growth in revenue," Banga said, and he noted that "we continue to deliver against our strategy, looking to our investments and acquisitions to create a better cardholder experience." Commitment to digital security and electronic-payments innovations should play a key role in supporting the company's growth in the future.
MasterCard also continued to make share buybacks a key part of its quest to keep earnings per share moving higher. During the first quarter, MasterCard spent almost $1.4 billion buying back 15 million shares of its stock. Through mid-April, the company had bought back another 3 million shares, and MasterCard still has $2.9 billion remaining in its authorized buyback program to execute future repurchases.
Traders initially sent MasterCard shares down sharply in pre-market trading following the announcement, but the stock quickly rebounded as investors seemed to see the long-term positives in the card giant's report. As long as international growth keeps supporting its fundamental results, MasterCard looks poised to keep moving in the right direction, and once some of the dollar-related headwinds that the company has dealt with start to dissipate, earnings growth should become more significant.