The FINANCIAL — Visa Inc. on April 21 announced financial results for the Company’s fiscal second quarter 2016. GAAP net income for the quarter, inclusive of a non-recurring, non-operating gain related to currency forward contracts, was $1.7 billion, or $0.71 per share. All references to earnings per share assume fully-diluted class A share count unless otherwise noted.
During the fiscal second quarter, the Company entered into currency forward contracts to mitigate a portion of the foreign currency exchange rate risk associated with the upfront cash consideration to be paid in the anticipated Visa Europe acquisition. As a result, the Company recorded non-recurring, net unrealized gains of $116 million in non-operating income. Excluding this non-operating gain, adjusted net income for the quarter was $1.6 billion, an increase of 5% over the prior year. Adjusted earnings per share was $0.68, an increase of 7% nominally, or 12% in constant dollars, over the prior year. The Company’s adjusted quarterly net income and earnings per share are non-GAAP financial measures that are reconciled to their most directly comparable U.S.
Net operating revenue in the fiscal second quarter of 2016 was $3.6 billion, an increase of 6% nominally or 9% on a constant dollar basis over the prior year, driven by continued growth in processed transactions and nominal payments volume. Currency rate shifts versus the prior year negatively impacted reported net operating revenue growth by approximately 3 percentage points, according to Visa.
“Visa reported solid financial results in the fiscal second quarter. The continued headwinds of the strong U.S. dollar, lower oil prices, and an uneven global economy are driving continued weak cross-border spend, but domestic spend continues at reasonably strong levels consistent with last quarter. In fact, most of our growth metrics look very similar to what we saw last quarter. The U.S. consumer remains strong, but we see weakness in China, Brazil, and oil based economies. Since we are not seeing any material improvements in economic trends, we are cautious as we head into the second half of fiscal 2016. The continued headwinds we see do not take away from the underlying growth in our business and our continued conviction in the great opportunities to grow global penetration of electronic payments for years to come,” said Charlie Scharf, Chief Executive Officer of Visa Inc.
Fiscal Second Quarter 2016 Financial Highlights:
Payments volume growth, on a constant dollar basis, for the three months ended December 31, 2015 on which fiscal second quarter service revenue is recognized, was 12% over the prior year at $1.3 trillion.
Payments volume growth, on a constant dollar basis, for the three months ended March 31, 2016, was 12% over the prior year at $1.3 trillion.
Cross-border volume growth, on a constant dollar basis, was 5% for the three months ended March 31, 2016.
Total processed transactions, which represent transactions processed by VisaNet, for the three months ended March 31, 2016, were 18.5 billion, a 9% increase over the prior year.
Fiscal second quarter 2016 service revenues were $1.7 billion, an increase of 8% over the prior year, and are recognized based on payments volume in the prior quarter. All other revenue categories are recognized based on current quarter activity. Data processing revenues rose 10% over the prior year to $1.5 billion. International transaction revenues grew 8% over the prior year to $1.0 billion. Other revenues were $198 million, a decrease of 3% over the prior year. Client incentives, which are a contra revenue item, were $789 million and represent 17.9% of gross revenues.
Total operating expenses were $1.2 billion in the fiscal second quarter, a 6% increase over the prior year, primarily due to increases in personnel, general and administrative, and network and processing expenses.
The Company recognized interest expense of $125 million for the quarter ended March 31, 2016 as a result of the issuance of approximately $16.0 billion of fixed-rate senior notes in the quarter ended December 31, 2015.
The effective tax rate was 30.1% for the quarter ended March 31, 2016.
Cash, cash equivalents, and available-for-sale investment securities were $23.4 billion at March 31, 2016.
The weighted-average number of diluted shares of class A common stock outstanding was 2.4 billion for the quarter ended March 31, 2016.
Notable Events:
During the three months ended March 31, 2016, the Company repurchased 24.2 million shares of class A common stock, at an average price of $72.23 per share, using $1.8 billion of cash on hand. Fiscal year to date through March 31, 2016, the Company repurchased a total of 49.9 million shares of class A common stock, at an average price of $75.47 per share, using $3.8 billion of cash on hand. The Company has $4.0 billion of remaining funds, authorized by the board of directors, available for share repurchase under the current program.
On April 20, 2016, the board of directors declared a quarterly cash dividend of $0.14 per share of class A common stock (determined in the case of class B and C common stock on an as-converted basis) payable on June 7, 2016, to all holders of record of the Company’s class A, B and C common stock as of May 13, 2016.
Financial Outlook for Fiscal Full-Year 2016:
Visa Inc. reaffirms its financial outlook for the following metrics for fiscal full-year 2016:
Annual operating margin: Mid 60s; and
Annual free cash flow: About $7 billion.
Visa Inc. updates its financial outlook for the following metrics for fiscal full-year 2016:
Annual net revenue growth: 7% to 8% range on a constant dollar basis, with an expectation of about 3 percentage points of negative foreign currency impact;
Client incentives as a percentage of gross revenues: High-end of the 17.5% to 18.5% range;
Adjusted effective tax rate: About 30%; and
Annual adjusted diluted class A common stock earnings per share growth: Low double-digits on a constant dollar basis, with an expectation of about 4 percentage points of negative foreign currency impact. This now includes interest expense of about $390 million, or over 9 cents of earnings per share, which equates to almost 4 percentage points of reduced year-over-year growth.
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