Mastercard Incorporated (MA - Free Report) reported adjusted earnings of $1.66 per share, beating the Zacks Consensus Estimate of $1.53. Earnings improved 48% year over year (on a currency neutral basis). Improved revenues drove the earnings upside.

Better-than-expected results were primarily backed by higher switched transactions, increase in cross-border volume and gross dollar volume as well as gains from acquisitions. An increase in rebates and incentives year over year was a partial dampener.

Shares, however, lost 2.5% in the pre-market trading session.

Mastercard Incorporated Price, Consensus and EPS Surprise

Mastercard Incorporated Price, Consensus and EPS Surprise | Mastercard Incorporated Quote

Strong Operational Performance

Mastercard’s revenues of $3.7 billion surpassed the Zacks Consensus Estimate of $3.66 billion. Revenues were up 18% year over year (on a currency neutral basis).

Total adjusted operating expenses increased 6% to $1.5 billion, due to higher, general and administrative expenses, advertising and marketing expenses, depreciation, and provision for litigation expenses.

Operating margin expanded 470 basis points to 59%.

Gross dollar volume increased 14% while cross-border volumes were up 19% on a local currency  basis.

The company’s margins gained from a lower tax rate of 18.3% in the second quarter that compares with 27.7% in the year-ago quarter.

As of Jun 30, 2018, the company’s customers had issued 2.4 billion Mastercard and Maestro-branded cards, adjusted for the impact of the Venezuela deconsolidation.

Financial Update

As of Jun 30, 2018, the company’s cash and cash equivalents were $6.21 billion, up 4% from the level at year-end 2017. Long-term debt was $5.86 billion, up 8% from the mark at 2017 end.

Share Repurchase and Dividend Payment

During the reported quarter, Mastercard repurchased shares worth $1.5 billion and returned $262 million in dividends.

Our Take

Mastecard’s results reflect its strong operating performance, driven by continued efforts to cater superior service to its customers. Its acquisitions, investments in technology, a number of deals and partnerships signed with clients across the globe are expected to consistently aid its transaction volume growth, thus driving the top line.

Moreover, increasing use of plastic money to replace cash provides ample room for the company’s growth. Its strong balance sheet and disciplined capital management strategy are the other positives.

Zacks Rank

Mastercard carries a Zacks Rank #3 (Hold). 

Performance of Other Financial Transaction Service Providers

Among the other players from the finance sector, American Express Co. (AXP - Free Report) , Capital One Financial Corp. (COF - Free Report) and Alliance Data Systems Corp. (ADS - Free Report) beat earnings by 0.55%, 22.4% and 11.11%, respectively, in the second quarter.