MasterCard Keeps Riding the Spending Wave Higher

Image: MasterCard

The soaring U.S. economy stands out across the global markets, as many areas of the world are still slogging through tough conditions in their respective markets. Yet looking at how MasterCard has performed recently, you'd think that the global economy was still in boom mode. Going into Wednesday morning's first-quarter financial result, some MasterCard investors feared that the strong U.S. dollar and poor GDP growth rates abroad could eat into its sales and profits. Yet MasterCard largely defied those fears with results that showed strong spending and promising prospects for the future. Let's look more closely at how MasterCard did last quarter and what's ahead for the card-network giant.

MasterCard stakes its claim to the worldMasterCard's first quarter results showed solid growth, with profits that exceeded the loftiest of expectations from investors. Revenue grew 3% to $2.23 billion, which was actually less than the $2.28 billion consensus estimate among those following the stock. Yet on the bottom line, MasterCard posted 17% profit growth, translating to earnings of $0.89 per share. That beat investors' expectations by nearly a dime per share and showed the dual impact of better income and falling share counts.

Investors need to realize, though, that negative currency impacts in those numbers masked the true extent of MasterCard's growth. On a currency-neutral basis, sales jumped 8%, leading to currency-adjusted net income gains of 24%. Cross-border transaction volume climbed 19%, and gross volume on a local-currency basis grew 12% to $1.1 trillion. The number of processed transactions also posted solid 12% gains, reaching the 11 billion mark in what has traditionally been a sluggish period for the company. Worldwide, purchase volume grew 12% to $783 billion, with customers wielding 2.2 billion branded cards.

As we've seen in previous quarters, MasterCard continues to get its best growth from its international markets. Purchase-volume growth rose at double-digit rates in local-currency terms in all four of the company's international segments, helping to lift foreign purchase volume by nearly 15%. By contrast, the U.S. saw gains at roughly a 7% pace, holding back the overall company. The result is that international transactions make up an increasingly large proportion of MasterCard's total business, with more than 60% of gross dollar volume and purchase transactions coming from outside the U.S., supporting the company's overall strategy.

MasterCard also took steps to rein in costs. Operating expenses actually declined from the year-ago quarter, with most of the savings coming from reductions in general and administrative costs.

Image: MasterCard

What's next for MasterCard?MasterCard clearly believes that it can keep thriving. As CEO Ajay Banga said, "We are managing well, despite a mixed economic environment and challenging currency situation." Banga also pointed to strong fundamentals for the business, including new agreements with financial giants including Citigroup and Brazil's Itau that should help promote further growth.

MasterCard also continued buying back its own shares, with considerably more fervor than in past quarters. In total, MasterCard spent almost $950 million buying back 11 million shares of its stock during the first three months of the year, and the company said that it had bought back another 2.7 million shares just in the first few weeks of April. Even with all that spending, MasterCard still has $2.8 billion remaining for stock buybacks, which could potentially give even its share price even more of a boost going forward.

The big question MasterCard investors face is when the U.S. dollar's strong upward move will finally start to flatten out. At this rate, shareholders can expect MasterCard to keep facing currency headwinds throughout 2015, potentially pulling down results dramatically in dollar terms. When the dollar stops rising, though, MasterCard could enjoy the benefits of faster growth rates simply by keeping up the same pace it has enjoyed in local-currency terms throughout its recent past.

MasterCard investors seemed pleased but unsurprised by the company's positive results, as the stock traded up around 1% in the first hour of premarket trading following the announcement. With signs that consumers are weathering economic storms in worldwide markets, MasterCard is positioned well to take advantage of spending patterns and to make itself an even more important piece of the global economy going forward.

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

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