Visa (NYSE:V) announced its fourth-quarter results alongside the announcement of the full-year results, bringing FY14 to a close for the company. The quarter and full-year's solid earnings report was a boost to investor confidence, which was further improved when the company noted improvements in its cash position and announced a future share repurchase program as well.
Fourth-quarter financial overview
The fourth quarter saw an increase in Visa's operational revenue, which increased by 8.6%, up from $2.973 billion in last year's fourth quarter to $3.229 billion in the recently concluded quarter. Operating income for the company decreased to $1.552 billion, down by 11.4% relative to the corresponding quarter of the previous year.
Net income for the company amounted to $1.073 billion, and was 10% lower than the net income reported in the previous year. Diluted earnings per share decreased over last year's fourth quarter from $1.85 per share to $1.72 per share in the recently concluded quarter. Adjusted net income for the quarter amounted to $1.4 billion, translating into diluted earnings per share of $2.18. These were 14% and 17% higher, respectively, over the prior year's results. These results were able to top analysts' estimates for the quarter. Operating revenues beat analyst estimates of $3.19 billion, and adjusted earnings per share were higher than analyst estimates of $2.10 per share.
Visa also noted a 3% increase in its operating margins, which came in at 62% for the quarter. Gross profit margin amounted to $67.5%, while the net profit margin amounted to 43.10%. This was higher than the margins calculated in the prior year, and also outperformed the industry average. Free cash flow for the quarter amounted to $1.5 billion, while capital expenditure was noted at $227 million. Quarterly dividends were increased by 20%.
Full-year financial highlights
Visa reported a 7.8% increase in its full year's operational revenues which came in at $12.702 billion. Operational income for the full year increased by 6%, and amounted to $7.697 billion. Net income for the year was 9.2% higher relative to FY13, and was announced at $5.438 billion. Diluted earnings per share for the year also increased, and were announced at $8.62 per share, up from $7.59 per share that was reported in FY13.
Visa noted a 10% increase in its payment volumes on a year-to-year basis. The fourth quarter witnessed a 9.7% increase in US transactions, while international transactions grew by 10.4%. An analysis of volume growths indicated that the increase in revenues were in line with the volume growth during the period. The data processing segment brought in the most revenues for the company during the quarter in relative terms, recording a 13.7% increase over revenues recorded from the same segment in the prior year's fourth quarter.
The company added that the mobile payment industry would be a growth driver for business in the future. Other card companies are diverting their attention towards mobile payments as well. Visa has partnered with Apple to launch Apple Pay, allowing users to pay for items with the tap of a button. With mobile payments estimated to be a $1 trillion industry by 2017, Visa can nurture its growth by tapping into this new emerging market.
The step into the mobile payment industry could lead to higher volumes for Visa, which will effectively translate into higher revenues. The step by Visa to collaborate in launching Apple Pay is a strategic move that could pay off well in the future. The mobile payment industry is a fairly large one, and though it may be competitive, it has considerable room for rivals to operate in it as well.
Outlook for FY15
Visa announced its financial outlook for the next fiscal year, and expects low-double digit constant dollar growth in its revenues. Annual operating margin for the upcoming year is expected in the mid-60s range, while annual free cash flow is expected to be larger than $6 billion for the year. The company has also announced the launch of a share buyback program worth $5 billion.
With China lagging behind other countries in terms of credit spending, the latest move by the country's government to open its markets to clearing domestic bank card transactions is one that is viewed by Visa and its rival MasterCard (NYSE:MA) as an opportunity to enter a market that could be worth over $1 trillion a year.
With the Chinese population becoming keener on spending as compared to before, the CEO of Visa, Charlie Scharf, spoke about looking forward to working with the people of China in order to begin participating in the marketplace. With a good deal in hands in the near future, Visa could not only be looking at an expansion in its user base, but also at an improvement in its top line growth that is highly likely to follow.
An analysis of Visa's stocks in the capital market indicates that shares have been bullish over the course of the past one year, where despite some major dips, prices have increased by nearly 22%. There is no doubt about the fact that share prices have fluctuated tremendously over the past 52 weeks, where Visa's prices have come in at a low of $194.84, while achieving a high of $258.95 as well. Analysts have targeted share prices to amount to $259.78 over the course of the next year. Given that share prices are hovering around the $255 mark at the moment, this seems like a reasonable and achievable estimate.
For investors seeking shelter in the form of dividends, the low dividend yield of 0.80% does not seem attractive enough to put their money into the stock at the moment. However, the improved cash position of the company signifies that shareholders could witness future share buybacks and rewards in the form of higher dividends in the future as well.
Visa's shares trade at 29.70 times their earnings, and seem to be fairly valued. Although share prices have shown a bullish trend over the past few months, the fundamentals continue to drive the company forward with the promise that shareholders could gain from an investment in the share at this point in time.
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