Visa Inc.’s (V - Analyst Report) fourth-quarter fiscal 2014 (ended Sep 30, 2014) operating earnings per Class A common share (EPS) of $2.18 outpaced the Zacks Consensus Estimate of $2.11 by 3.3%. With this, the company kept the earnings streak alive for the four trailing quarters, with an average beat of 2.4%. EPS also surged 17% from the prior-year quarter figure of $1.85 per share.

Visa Inc - Quarterly EPS (BNRI) | FindTheBest

Operating net income increased 13.8% to $1.36 billion from $1.19 billion in the year-ago quarter. Including litigation provision of $283 million ($450 million pre-tax) or 45 cents per share, reported net income in the quarter was $1.07 billion or $1.72 per share.

Alongside, total operating revenues for the reported quarter was $3.23 billion, up 8.6% year over year and also exceeded the Zacks Consensus Estimate of $3.19 billion. Growth was driven by higher card spending and strong performance across all segments.

Service revenues increased 8.2% year over year to $1.5 billion and are recognized based on payments volume in the prior quarter. All other revenue categories are recognized based on the current quarter activity. Data processing revenues grew 13.7% from the prior-year period to $1.35 billion.

Additionally, International transaction revenues, which are driven by cross-border payments volume, rose 4.3% from the prior-year quarter to $938 million. Other revenues, earned through Visa Europe’s licensing fee, were $212 million, improving 15.8% from the year-ago quarter. Client incentives, which is a contra-revenue item, came in at $768 million, and accounted for 19.2% of gross revenues.

On a constant dollar basis, payment volume increased 11% year over year to $1.2 trillion. Total processed transactions carrying the VisaNet brand increased 9% year over year to 16.9 billion. Cross border volume, on a constant dollar basis, grew 10% from the prior-year quarter.

Meanwhile, total core operating expenses inched up 0.4% year over year to $1.23 billion, while GAAP operating expenses rose 37.2% to $1.68 billion. Consequently, Visa’s reported operating income declined 23.2% to $1.55 billion. Furthermore, core operating margin rose to 62% from 59% in the year-ago period, whereas GAAP operating margin reduced to 48% from 59% a year-ago.

Full-Year Highlights

For full-year fiscal 2014, Visa reported operating earnings of $9.07 per Class A common share that beat the Zacks Consensus Estimate of $8.99. Additionally, the figure exceeded prior fiscal year’s earnings of $7.59 per share by 19.5%, and outperformed management guidance of high teens’ growth as well. Consequently, operating net income escalated 14.9% year over year to $5.72 billion.

Including extraordinary items, GAAP net income in fiscal 2014 stood at $5.44 billion or $8.62 per share. However, no adjustments were recorded in fiscal 2013.

Total operating revenue was $12.7 billion, up 7.8% year over year, and breezed past the Zacks Consensus Estimate of $12.66 billion. Total processed transactions carrying the VisaNet brand increased 11% year over year to 64.9 billion. Results were below management’s guidance of low double digit growth.

Total core operating expenses nudged up 0.4% year over year to $4.56 million. Operating margin climbed to 64% from 61% in the prior fiscal year. However, GAAP operating margin remained flat at 61% in fiscal 2014 owing to GAAP operating expenses of $5.0 billion. Effective tax rate was 29.6% in fiscal 2014 against 31.4% in fiscal 2013.

Financial Update

As of Sep 30, 2014, cash and cash equivalents and available-for-sale investment securities amounted to $3.95 billion, down from $4.26 billion as of Sep 30, 2013. Nevertheless, long-term debt remained nil at fiscal 2014-end, while total assets increased to $38.57 billion from $35.96 billion at fiscal 2013-end. Total equity was $27.41 billion, down from $26.87 billion as of Sep 30, 2013.

Further, Visa’s operating cash flow stood at $7.21 billion at the end of fiscal 2014, surging 138.4% from $3.02 billion recorded at the end of fiscal 2013.

Stock Update

During the reported quarter, Visa repurchased about 3.6 million class A common shares for a total cost of $756 million from open market operations, while $450 million of operating cash were deposited to litigation escrow account under the retrospective responsibility plan. This has an impact similar to share buybacks. Overall, shares worth $4.6 billion were bought back in fiscal 2014, including the litigation escrow deposit.

Concurrently, the board sanctioned a new share repurchase program worth $5.0 billion. Including $682 million from the current set authorized in Oct 2013, Visa now has $5.68 billion of shares available for repurchase.

Guidance

Visa provided the financial outlook for fiscal 2015, anticipating annual operating earnings per share to grow in mid-teens range. Annual net revenue growth is expected to be within low double-digits, with an adverse foreign currency impact of about 2%.

Meanwhile, the company expects annual operating margin in the mid-60% range. Further, Visa expects client incentives within 17.5−18.5% of gross revenue. Additionally, annual free cash flow is estimated to be over $6 billion in fiscal 2015. Tax rate is likely to be in low-30% band.

Dividend Update

On Oct 22, 2014, the board declared a 20% hike in its quarterly dividend to 48 cents per share of class A common stock from the prior 40 cents, marking the 6thconsecutive annual dividend increment. This brings the annual dividend to $1.92 per share from prior payout of $1.60.

The hiked dividend will be paid on Dec 2, 2014, to the company’s common shareholders of record as on Nov 14. Previously in October of 2013 and 2012, the company had raised its dividend by 21.2% and 50%, respectively.

On Sep 3, 2014, Visa paid a quarterly dividend of 40 cents per share to common shareholders of record as on Aug 15.

Zacks Rank

Currently, Visa carries a Zacks Rank #2 (Buy).

Peers

On Oct 15, Visa’s close competitor, 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 was also higher than the year-ago quarter figure of $1.25 by 12.6%. Improved cardmember spending and lower expenses supported growth.

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.

Meanwhile, MasterCard Inc. (MA - Analyst Report) is slated to release third-quarter 2014 earnings before the opening bell on Oct 30.