Mastercard Incorporated (NYSE:MA) today announced financial results for the third quarter of 2016. The company reported net income of $1.2 billion, an increase of 21% versus the year-ago period, or 15% excluding a special item related to the termination of the U.S. employee pension plan taken in last year’s third quarter. Earnings per diluted share were $1.08, up 26%, or 19% excluding the special item. There was no currency impact on the reported growth rates for the third quarter, except where noted below.
Net revenue for the third quarter of 2016 was $2.9 billion, a 14% increase versus the same period in 2015. Net revenue growth was driven by the impact of the following:
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An increase in processed transactions of 18%, to 14.5 billion;
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An increase in cross-border volumes of 12%; and
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An 11% increase in gross dollar volume, on a local currency basis and adjusting for the impact of recent EU regulatory changes, to $1.2 trillion.
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These factors were partially offset by an increase in rebates and incentives, primarily due to increased volumes and new and renewed agreements.
As a result of the June 2016 implementation of new EU regulations, the company no longer charges fees on domestic EEA co-badged volume and thus excludes that volume from its metrics. The impact on net revenue is
de minimis (see page 11 for explanation of adjusted growth rates).
Worldwide purchase volume during the quarter was up 9% on a local currency basis, adjusting for the impact of recent EU regulatory changes, versus the third quarter of 2015, to $882 billion. As of September 30, 2016, the company’s customers had issued 2.3 billion Mastercard and Maestro-branded cards.
“Our business continues to perform well, and we are pleased with our strong growth in revenue and earnings per share this quarter,” said Ajay Banga, Mastercard president and CEO. “We are executing on our strategy, deepening issuer relationships and delivering our customers and partners digital-first solutions. As a result, consumers benefit from seamless and secure purchase experiences everywhere and every way they shop.”
Total operating expenses increased 4%, or 5% on a currency-neutral basis, to $1.2 billion during the third quarter of 2016 compared to the same period in 2015. Excluding the special item taken in the year-ago period, total operating expenses increased 12%. The increase was primarily due to continued investments in strategic initiatives, foreign exchange activity and higher data processing expenses.
Operating income for the third quarter of 2016 increased 22% versus the year-ago period. Compared to the third quarter of 2015 and excluding that quarter’s special item, operating income for the third quarter of 2016increased 15%. The company delivered an operating margin of 58.0%.
Mastercard reported other expense of $37 million in the third quarter of 2016, versus $17 million in the third quarter of 2015. The increase was mainly due to an impairment charge taken on an investment.
Mastercard’s effective tax rate was 27.5% in the third quarter of 2016, versus a rate of 27.7% in the comparable period in 2015, or 28.2% excluding last year’s special item. The decrease was primarily due to the recognition of discrete tax benefits during the quarter, partially offset by a lower repatriation benefit.
During the third quarter of 2016, Mastercard repurchased approximately 6 million shares of Class A common stock at a cost of $591 million. Quarter-to-date through October 25, the company repurchased an additional 2.6 million shares at a cost of $263 million, which leaves $1.8 billion remaining under the current repurchase program authorization.
Year-to-Date 2016 Results
For the nine months ended September 30, 2016, Mastercard reported net income of $3.1 billion, an increase of 7%, or 9% on a currency-neutral basis, and earnings per diluted share of $2.83, up 11%, or 12% on a currency-neutral basis, versus the year-ago period. Excluding special items taken in the second quarters of both 2015 and 2016 related to separate U.K. merchant litigations, as well as the third quarter 2015 special item related to the U.S. pension plan termination, net income was $3.2 billion, up 6%, or 8% on a currency-neutral basis. Earnings per diluted share were $2.90, up 10%, or 12% on a currency-neutral basis, compared to the same period in 2015.
Net revenue for the nine months ended September 30, 2016 was $8.0 billion, an increase of 12%, or 14% on a currency-neutral basis, versus the same period in 2015. Processed transactions growth of 15%, cross-border volume growth of 12% and gross dollar volume growth of 12%, on a local currency basis and adjusting for the impact of recent EU regulatory changes, contributed to the net revenue growth in the year-to-date period. These factors were partially offset by an increase in rebates and incentives.
Total operating expenses were $3.6 billion, an increase of 14%, or 16% on a currency-neutral basis, for the nine months ended September 30, 2016, compared to the same period in 2015. Excluding special items, total operating expenses were $3.5 billion, an increase of 16%, or 17% on a currency-neutral basis, compared to the same period in 2015. The increase was primarily due to continued investments to support strategic initiatives in digital, services, data analytics and geographic expansion, as well as higher legal costs. Also, the impact from foreign exchange activity and balance sheet remeasurement had a negative impact of approximately 4 percentage points on operating expense growth, compared to the same period in 2015.
Operating income for the nine months ended September 30, 2016 was $4.4 billion, an increase of 11%, or 13% on a currency-neutral basis, versus the same period in 2015. Excluding special items, operating income was $4.5 billion, an increase of 10%, or 11% on a currency-neutral basis, compared to the same period in 2015. The company delivered an operating margin of 54.8%, or 56.2% excluding this year’s special item.
Mastercard’s effective tax rate was 27.9% for nine months ended September 30, 2016, versus a rate of 25.8% in the comparable period in 2015, or 26.0% excluding special items. The increase was primarily due to the recognition of larger discrete benefits in 2015 and lower repatriation benefits in 2016, partially offset by a more favorable geographic mix of taxable earnings in 2016.
Third-Quarter Financial Results Conference Call Details
At 9:00 a.m. ET today, the company will host a conference call to discuss its third-quarter financial results.
The dial-in information for this call is 877-201-0168 (within the U.S.) and 647-788-4901 (outside the U.S.), and the passcode is 89677548. A replay of the call will be available for 30 days and can be accessed by dialing 855-859-2056 (within the U.S.) and 404-537-3406 (outside the U.S.), and using passcode 89677548.
This call can also be accessed through the Investor Relations section of the company’s website at www.mastercard.com/investor. Presentation slides used on this call are also available on the website.
Non-GAAP Financial Information
The company has presented certain financial data that are considered non-GAAP financial measures that
are reconciled to their most directly comparable GAAP measures in the accompanying tables.
The presentation of growth rates on a currency-neutral basis represent a non-GAAP measure and are calculated by remeasuring the prior period’s results using the current period’s exchange rates for both the translational and transactional impacts in our operating results.
About Mastercard Incorporated
Mastercard (NYSE:MA), www.mastercard.com, is a technology company in the global payments industry. We operate the world’s fastest payments processing network, connecting consumers, financial institutions, merchants, governments and businesses in more than 210 countries and territories. Mastercard products and solutions make everyday commerce activities – such as shopping, traveling, running a business and managing finances – easier, more secure and more efficient for everyone. Follow us on Twitter @MastercardNews, join the discussion on the Beyond the Transaction Blog and subscribe for the latest news on the Engagement Bureau.