Tuesday, February 1, 2011

Visa Inc. (NYSE: V): Q1 Earnings Preview 2011

Visa Inc. (NYSE: V), the world’s largest electronic payments network, is scheduled to release its fiscal first-quarter earnings after the closing bell on Wednesday, February 2, 2011. Analysts, on average, expect the company to report earnings of $1.20 per share on revenue of $2.22 billion. In the year ago quarter, the company reported earnings of $1.02 per share on revenue of $1.96 billion.

Visa Inc. operates retail electronic payments network worldwide. It facilitates commerce through the transfer of value and information among financial institutions, merchants, consumers, businesses, and government entities. The company owns and operates VisaNet, a global processing platform that provides transaction processing services, primarily authorization, clearing, and settlement, as well as related value-added services.

In the preceding fourth quarter, the San Francisco, California-based company's net income was  $774 million, or $1.06 per class A share,  from $514 million, or 69 cents per class A share, in the year-ago quarter. On an adjusted basis, which excludes the revaluation of the company's Visa Europe put option, the company earned 95 cents per class A share in the latest quarter. Total operating revenues grew to $2.12 billion from $1.88 billion. Analysts, on average, expected the company to report earnings of 95 cents per share on revenue of $2.09 billion.

At its last earnings call in October, the company said that it continues to expect annual earnings per share growth of greater than 20% and net revenue growth in the range of 11% to 15%. Further, the company re-affirmed its volume and support incentives to be in the range of 16.0%-16.5% of gross revenue; advertising, marketing and promotional expenses to be less than $900 million and annual free cash flow to exceed $3 billion in fiscal 2011.

The company continues to benefit from strong secular demand growth, increased payment volumes, meaningful international exposure, high barriers to entry, excellent pricing power, impressive operating leverage, and consistent growth in processed transactions.

However, uncertainty stemming from financial overhaul, which includes curbs on debit-card transaction fees, has taken some shine off Visa's shares.  Last month, the Federal Reserve on Thursday proposed capping fees banks can charge merchants for debit-card transactions at 12 cents. While that directly affects bank revenues from debit cards, the banks could try to get Visa and MasterCard to lower their fees to use their networks in order to offset the revenue loss. Final recommendations on the proposal are set to be issued in April.  According to Visa, the debit caps, set to take effect in July, won’t affect Visa’s results until the fiscal fourth quarter of 2011.

The company is repurchasing shares and boosting dividends as lawmakers, litigators and regulators challenge the company’s fees and rules. Late in October, the board of Visa announced the authorization of a new $1.0 billion share buyback program, which is expected to be completed by September 30, 2011, but could be expanded or extended depending on the market conditions and the board’s approval. Although regulatory compliances as a result of the ongoing financial overhaul reform in the U.S. and litigation could weigh on the financials of the company in fiscal 2011 and ahead, Visa has been delivering growth by minimizing expenses, generating strong cash flow and maintaining a healthy capital position.

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