MasterCard Charges Ahead on Renewed Growth

By Markets Fool.com

Cash payments have become increasingly rare across the globe, and MasterCard (NYSE: MA) has sought to capture as much of the flood into card-based and electronic payment processing as possible. For a long time, though, the strong U.S. dollar had weighed on MasterCard's results, but coming into Friday's third-quarter financial report, MasterCard investors were hoping that the impact of foreign currency would let up and allow a bit more of the company's fundamental growth to show up in its financial results. MasterCard's report was even better than most had expected, and solid prospects for the future have shareholders excited about the company's potential. Let's take a closer look at MasterCard's latest results and what they say about what's to come for the card giant.

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Image source: MasterCard.

MasterCard finally sees currency pressures go away

MasterCard's third-quarter results showed what the payment processing company is capable of achieving in a friendly currency environment. Sales jumped 14% to $2.88 billion, topping the consensus forecast among investors by $130 million. Net income was also strong, rising 21% to $1.18 billion, and that produced earnings of $1.08 per share. MasterCard's bottom-line figure was $0.10 per share better than most of those following the stock had expected to see.

Taking a closer look at MasterCard's report, one of the best things for long-term investors was that the company saw almost no negative impact from currency fluctuations. Discrepancies between currency-neutral and dollar-denominated figures came up in only a few instances, and most of them were related to nine-month figures rather than numbers from the most recent quarter.

Moreover, MasterCard still appears to be performing well from a fundamental basis. Cross-border volume sustained the 12% growth pace it has seen recently, and gross-dollar volume after adjustments climbed 11% year over year to $1.2 trillion. Processed transaction counts grew at an even faster pace of 18% to 14.5 billion, and worldwide purchase volumes climbed 9% in local currency terms to $882 billion. About 2.3 billion MasterCard-issued cards were outstanding as of Sept. 30.

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As we've seen on many occasions before, MasterCard saw better growth internationally than in the U.S. market. Among its major geographical segments, only Europe posted slower growth than the U.S., and that stemmed from particularly strong currency headwinds affecting the region. Growth in the Asia-Pacific and Latin American markets was markedly stronger than MasterCard's domestic performance, and Canada also continued to fare well for MasterCard. By contrast, growth in gross-dollar volume in the U.S. was somewhat sluggish, slowing from the year-ago pace of gains domestically.

A big contributor to MasterCard's earnings was that operating expenses remained under control, rising just 4%. Advertising and marketing costs stayed steady, and that helped keep overhead and other expenses from eating into MasterCard's revenue gains too much.

What's ahead for MasterCard?

CEO Ajay Banga was happy about the company's progress. "We are executing on our strategy, deepening issuer relationships, and delivering our customers and partners digital-first solutions," Banga said, and "as a result, consumers benefit from seamless and secure purchase experiences everywhere and every way they shop."

Buyback activity has also kept contributing to MasterCard's success. The company bought back 6 million shares during the third quarter, paying $591 million for the stock. So far in October, MasterCard has already made repurchases of another 2.6 million shares for $263 million, and the company still has $1.8 billion left under its current repurchase authorization for future buybacks.

MasterCard investors celebrated the news, sending the stock up nearly 4% by midday following the announcement. Now that currency headwinds appear to be disappearing and consumers haven't shown signs of pulling back on spending, MasterCard hopes that it can see more of its fundamental business success flow down into its financial results. Currencies will inevitably be volatile, but MasterCard's prowess in producing strong business performance should pay off with still more growth lasting well into the future.

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