Give MasterCard Extra Credit for a Strong Quarter

By Markets Fool.com


Source: Flickr user Hakan Dahlstrom.

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Throughout the course of earnings season, companies have stressed how the strong dollar has eaten into their growth prospects. Yet even though card network specialist MasterCard has a business that prides itself on its international reach, adverse conditions in the currency markets didn't make an appreciable dent in the company's impressive gains. After rival Visa reported strong results Thursday night, MasterCard had a tough act to follow Friday morning when it announced its fourth-quarter results, but investors have to be pleased with the performance that MasterCard achieved to close out a strong 2014. Let's take a closer look at MasterCard's fourth-quarter financial results for insight on how the transaction-processor did.

MasterCard shows no mercy

The headline numbers from MasteCard's fourth quarter continued to give shareholders exactly what they wanted to see. Revenue climbed 14% from year-ago figures to $2.42 billion, capping a year that sported the same 14% growth in sales throughout 2014. MasterCard grew earnings at an even faster pace, with a 17% gain in net income equating to earnings per share of $0.69, up 21% from year-ago levels. Moreover, currency effects cost MasterCard about four percentage points of earnings growth, showing how the company would have expanded at an even faster pace without the dollar's strength.

Source: MasterCard.

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Looking beneath the surface, MasterCard kept firing on all cylinders. Cross-border transaction volumes rose by 19%, exceeding the 15% pace it set last quarter, and gross-dollar volumes after adjusting for local currency fluctuations grew 13% to $1.2 trillion. Transaction-count growth continued at double-digit percentage rate, with MasterCard sporting 11.6 billion processed transactions during the quarter. Worldwide, purchase volumes climbed to $858 billion, up 12% on a currency-adjusted basis from year-ago levels, as users of its 2.1 billion outstanding cards ramped up their spending.

Geographically, the U.S. continues to be the slowest part of MasterCard's growth story, although currency impacts led to a short-term reversal of fortune for the company this quarter. All four of MasterCard's international segments saw gross dollar volume growth rise by double-digit percentages in local-currency terms, compared to 7.5% growth in the U.S. segment. Yet only in the Asia-Pacific, Middle East, and Africa segment did those gains survive the rise of the U.S. dollar, and worldwide growth came in at just 6%. Still, on a purchase-volume and cash-volume basis, MasterCard's global business outshined its domestic results, further proving the value of the company's international strategy.

Just about the only concern for investors came from the expense side of MasterCard's income statement. Total operating expenses soared 26% for the period to $1.4 billion. MasterCard cited efforts to restructure its operations to match its resources more efficiently with its greatest profit opportunities, and it also pointed to its ongoing strategic initiatives and acquisitions as a source of higher overhead.

How 2015 looks for MasterCard

CEO Ajay Banga. Source: MasterCard.

Even with a strong 2014 in the books, MasterCard is already looking forward. CEO Ajay Banga noted that 2015 "is off to a good start with several new wins, as well as renewals of some important customer agreements, with more in the pipeline." Moreover, Banga believes that innovative payment systems like its MasterPass will help the company keep its leadership edge, while its international focus will help it gain greater penetration into underserved markets like Africa.

Moreover, MasterCard has ramped up its stock repurchase activity, reflecting its belief in its relative value. During the fourth quarter, MasterCard bought back 2.1 million shares, spending $155 million in the process. Yet already in January, the company has more than matched that amount, with $215 million going toward buying 2.5 million shares. With a whopping $3.8 billion available for future repurchases under the company's current buyback program, MasterCard shareholders can expect support for its stock as long as its strong results continue.

Some investors inevitably relegate MasterCard to the backburner, given Visa's greater size and visibility in some circles. Yet with its international focus, MasterCard looks better poised to take advantage of future opportunities, and so far, that's been good news for shareholders willing to bet on the current No. 2 player in the industry.

The article Give MasterCard Extra Credit for a Strong Quarter originally appeared on Fool.com.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends MasterCard and Visa. The Motley Fool owns shares of MasterCard and 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.