MasterCard posts 11% fourth quarter net income rise

Acquisitions had a $0.03 dilutive impact on earnings per diluted share in the quarter.

Net revenue for the fourth quarter of 2015 was $2.5 billion, a 4% increase versus the same period in 2014. Adjusted for currency, net revenue increased 9%. Net revenue growth was driven by the impact of the following:

• A 12% increase in gross dollar volume, on a local currency basis, to $1.2 trillion;
• An increase in processed transactions of 12%, to 13.0 billion; and
• An increase in cross-border volumes of 12%.

These factors were partially offset by an increase in rebates and incentives, primarily due to new and renewed agreements and increased volumes. Acquisitions contributed 2 percentage points to total net revenue growth.

Worldwide purchase volume during the quarter was up 12% on a local currency basis versus the fourth quarter of 2014, to $883 billion. As of December 31, 2015, the company’s customers had issued 2.3 billion MasterCard and Maestro-branded cards.

“Despite a challenging economy, we were able to deliver solid results for the quarter and the full year in 2015,” said Ajay Banga, president and CEO, MasterCard. “Entering 2016, while uncertainty in the global economy persists, the fundamentals of our business and our approach remain unchanged. We continue to be laser focused on our strategy to lead payment innovation in an increasingly digital world with solutions such as MasterPass, while growing the use of electronic payments through our products, partnerships and increased acceptance at the point-of-sale.”

Total operating expenses increased 1%, or 4% when adjusted for currency, to $1.4 billion during the fourth quarter of 2015 compared to the same period in 2014. The increase was primarily due to continued investments to support strategic initiatives, as well as the impact of acquisitions, which contributed 4 percentage points of the FX-adjusted growth, partially offset by ongoing cost management initiatives.

Operating income for the fourth quarter of 2015 increased 9%, or 17% adjusted for currency, versus the year-ago period. The company delivered an operating margin of 44.0%.

MasterCard reported other expense of $82 million in the fourth quarter of 2015 versus $11 million in the fourth quarter of 2014. The change was mainly driven by impairment charges on certain investments and by higher interest expense related to the company’s Euro debt offering in November 2015, partially offset by tax reserve adjustments and investment gains.

MasterCard’s effective tax rate was 13.1% in the fourth quarter of 2015, versus a rate of 20.3% in the comparable period in 2014. The decrease was primarily due to the recognition of discrete tax benefits in the fourth quarter of 2015 resulting from the impact of settlements with tax authorities during the quarter.

During the fourth quarter of 2015, MasterCard repurchased approximately 8 million shares of Class A common stock at a cost of $793 million. Quarter-to-date through January 22nd, the company repurchased an additional 3.1 million shares at a cost of $283 million, with $4.2 billion remaining under current repurchase program authorizations.

Full-Year 2015 Results

For the full-year 2015, excluding special items, MasterCard reported net income of $3.9 billion, an increase of 8%, or 15% after adjusting for currency, versus the year-ago period and earnings per diluted share of $3.43, up 11%, or 18% after adjusting for currency compared to the same period in 2014. The special items included after-tax charges of $44 million related to a U.K. merchant litigation settlement and $50 million related to the termination of the U.S. employee pension plan, recorded in the second and third quarters of 2015, respectively. Including the special items, net income was $3.8 billion and earnings per diluted share was $3.35. Acquisitions had an $0.11 dilutive impact on earnings per diluted share in the full-year period.

Net revenue for the full-year 2015 was $9.7 billion, an increase of 2%, or 8% after adjusting for currency, versus the same period in 2014. Gross dollar volume growth of 13%, transaction processing growth of 12% and cross-border volume growth of 16% contributed to the net revenue growth in the full-year period. These factors were partially offset by an increase in rebates and incentives. Acquisitions contributed 2 percentage points to total net revenue growth.

Excluding the special items, total operating expenses increased 3%, or 6% after adjusting for currency, to $4.4 billion for the full-year 2015, compared to the same period in 2014. The increase was primarily due to continued investments to support strategic initiatives as well as the impact of acquisitions, which contributed 6 percentage points of the FX-adjusted growth, partially offset by ongoing cost management initiatives and foreign exchange gains. Including the special items, total operating expenses increased 6%, or 10% after adjusting for currency, from the year-ago period.

Excluding the special items, operating income was $5.2 billion, an increase of 2% for full-year 2015 versus the same period in 2014, or an increase of 10% after adjusting for currency. The company delivered an operating margin of 54.0%.

MasterCard reported other expense of $120 million for the full-year 2015 versus $27 million compared to the same period in 2014. The change was mainly driven by impairment charges on certain investments and by higher interest expense resulting from debt issued in 2014 and 2015.

MasterCard’s effective tax rate was 23.4% for full-year 2015 versus a rate of 28.8% in the same period in 2014, excluding the special items. The decrease was primarily due to the recognition of discrete tax benefits in 2015 resulting from the impact of settlements with tax authorities, the recognition of a U.S. foreign tax credit and a more favorable geographic mix of taxable earnings.