MasterCard Speeds Growth At Year-End, 'Cautious' About '13

Investor's Business Daily

Amid a choppy economic backdrop at the end of last year, MasterCard (MA) delivered double-digit revenue and profit gains Thursday, ending four quarters of decelerating year-over-year growth.

The No. 2 card processor's Q4 earnings rose 21% to $4.86 a share. Analysts expected $4.81, according to Thomson Reuters. Revenue barely beat views, up 10% to just under $1.9 billion.

Card purchase volumes jumped more than 19% vs. a year earlier in Asia-Pacific, the Middle East, Africa and Latin America.

Even card spending in Europe rose 13%, thanks to stronger northern economies and a good showing from Poland and Russia.

U.S. card spending rose 7%, about the same pace as in Q3.

"It was a good quarter against low expectations," said SunTrust Robinson Humphrey analyst Andrew Jeffrey.

Shares rose 3% early to a record high. But they ended up just 0.5% at 518.40 on MasterCard's cautious outlook and comments on expected new interchange legislation in Europe. Larger rival Visa (NYSE:V), which isn't as exposed to Europe, rose 2%. It reports Feb. 6.

MasterCard still sees 11%-14% compounded annual revenue growth from 2013 to 2015 along with at least 20% EPS growth.

But CFO Martina Hund-Mejean told analysts on the post-earnings conference call that growth in the "early part" of that span might be below that. And CEO Ajay Banga's outlook for the first half of 2013 was "cautious.

"He's had a cautious outlook for several quarters," Jeffrey said, "and they've outperformed his caution.

U.S. credit was a weak link. Gross dollar volume, including cash from ATMs, rose 2.5%. Actual card spending was up 4%. But both were better than in Q3.

New bank partners could add to the momentum, such as the Jan. 28 announcement that MasterCard will become KeyBank's (KEY) exclusive credit card partner .

U.S debit volume rose 11%, slower than in recent quarters on easing market-share wins from Visa on federal regulations that mandate merchants use multiple card networks. It was debit-leader Visa's business to lose.

High-yielding cross-border volume, which is driven by international travel, climbed 17%, better than the 14% pace in Q3.

Processed transactions rose 20% vs. the prior year to 9.2 billion. Gross dollar volume grew 14% to $986 billion in local currency.

Operating margins expanded 3.5 percentage points in Q4 vs. the prior year to 47.4%. "Their expenses are growing much slower than revenue," said analyst David Togut of Evercore Partners.

Better margins "may be an important driver of earnings outperformance in the future," he said.

Meantime, currency head winds subsided as the euro appreciated vs. the dollar. Foreign exchange hurt revenue by 2% in Q4 vs. nearly 5% in Q3, analyst David Darst of Guggenheim Securities said.

"We're expecting foreign currency to provide a tail wind in 2013," he said.

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