MasterCard Inc. (MA - Analyst Report) reported third-quarter 2014 operating earnings per share (EPS) of 87 cents. The results comfortably exceeded both the Zacks Consensus Estimate of 78 cents and the year-ago quarter figure of 73 cents. With this result, the company’s average four-quarter beat stands at 0.4%. EPS had an adverse impact of 2 cents due to acquisitions in the reported quarter.

Operating net income jumped 15.5% year over year to $1.02 billion. No special items were recorded during the comparable periods.

MasterCard witnessed an increased number of processed transactions and strong gross dollar value (GDV) growth during the reported quarter. These were partially offset by higher operating expenses. While operating margin improved slightly, cash flows remained weak.

Net revenue grew 12.8% year over year and 13% on a constant currency basis to $2.5 billion, and breezed past the Zacks Consensus Estimate of $2.44 billion. Acquisitions accounted of 3% of total revenue growth. The upside was primarily due to a 10% rise in the number of processed transactions to 11 billion along with 15% increase in cross-border volumes. These were partially offset by higher rebates and incentives, primarily attributable to new and renewed business alliances.

During the reported quarter, GDV increased 12% to $1.2 trillion, while worldwide purchase volume rose 11% year over year, on a constant currency basis, to $843 billion. As of Sep 30, 2014, MasterCard had issued over 2.1 billion MasterCard-and Maestro-branded cards.

Total operating expenses rose 11.6% year over year to $1.08 billion. The overall increase primarily resulted from a surge of 29.7% in depreciation and amortization expenses and 13.7% uptick in general and administrative expenses. These were partially offset by flattish advertising and marketing expenses.

Subsequently, operating income increased 13.8% year over year to $1.42 billion in the reported quarter. Operating margin improved slightly to 56.7% from 56.3% in the year-ago quarter.  Additionally, interest expense rose to $11 million against income of $3 million. MasterCard's effective tax rate was 28.5%, lower than 29.9% in the year-ago period.

Financial Update

As of Sep 30, 2014, MasterCard’s net operating cash flow decreased 8.7% year over year to $2.68 billion, primarily owing to higher accrued litigation and legal settlements as well as other prepaid expenses and investments in acquisitions and strategic initiatives.

At the end of Sep 2014, cash and cash equivalents increased to $4.46 billion from $3.6 billion at 2013-end, while long-term debt stood at $1.49 billion against nil debt at 2013-end.

Meanwhile, retained earnings increased to $12.55 billion at the end of Sep 2014 from $10.12 billion at 2013-end. Moreover, total equity declined to $6.6 billion from $7.5 billion at Dec 2013.

Share Repurchase Update

During the reported quarter, MasterCard repurchased about 5.3 million shares for $404 million. Until Oct 23, 2014, the company bought back another 1.7 million shares for $121 million.

On Dec 10, 2013, the company’s board sanctioned a new share repurchase program worth $3.5 billion. Currently, it has about $310 million worth of stock available under this latest share repurchase program.

Dividend Update

On Sep 16, 2014, MasterCard declared a quarterly cash dividend of 11 cents a share, payable on Nov 10, 2014, to shareholders of record as on Oct 9.

Zacks Rank

MasterCard currently carries a Zacks Rank #3 (Hold).

Peers

Yesterday, MasterCard’s arch-rival – Visa Inc. (V - Analyst Report) – also beat on its fiscal fourth-quarter earnings, thanks to improved top line across segments. The company reported operating earnings of $2.18 per share, outpacing the Zacks Consensus Estimate of $2.11 and the prior-year quarter figure of $1.85 per share.

On Oct 20, another peer, Discover Financial Services (DFS - Analyst Report) reported third-quarter 2014 earnings per share of $1.37 that exceeded the Zacks Consensus Estimate of $1.34 and improved 14.2% from the year-ago quarter. Lower share count and loan growth primarily led the rise in earnings.

On Oct 15, American Express Co. (AXP - Analyst Report) reported third-quarter 2014 operating earnings per share of $1.40, which surpassed the Zacks Consensus Estimate of $1.38 by 1.4%. This marked the company’s third consecutive earnings beat.  EPS also topped the year-ago quarter figure of $1.25 by 12.6%. Improved cardmember spending and lower expenses supported growth.

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