Source: Seeking Alpha
Visa Inc. (NYSE:V)
Q3 2014 Results Earnings Conference Call
July 24, 2014, 05:00 PM ET
Jack Carsky – Head, Global IR
Byron Pollitt – CFO
Charles W. Scharf – CEO
Welcome to Visa Inc.’s Fiscal Third Quarter 2014 Earnings Conference Call. All participants are in a listen-only mode, until the question-and-answer session of today’s call. Today’s conference is also being recorded, if you have any objections you may disconnect at this time. I would now like to turn the conference over to your host, Mr. Jack Carsky, Head of Global Investor Relations. Mr. Carsky, you may begin.
Jack Carsky – Head, Global IR
Thanks, Charles. Good afternoon everybody and welcome to Visa’s earnings conference call today. With us today are Charlie Scharf, Visa’s Chief Executive Officer, and Byron Pollitt, Visa’s Chief Financial Officer.
This call is currently being webcast over the Internet. It can be accessed on the Investor Relations section of our website at www.investor.visa.com. A replay of the webcast will also be archived on our site for 30 days. A PowerPoint deck containing financial and statistical highlights of today’s commentary was posted to our website prior to this call.
Let me also remind you that this presentation may include forward-looking statements. These statements aren’t guarantees of future performance and our actual results could materially differ as the result of a variety of factors. Additional information concerning those factors is available in our most recent reports on Forms 10-K and Q, which you can find on the SEC’s website in the Investor Relations section of our website.
For historical non-GAAP or pro forma related financial information disclosed in this call, the related GAAP measures and other information required by Reg G of the SEC are available in the financial and statistical summary accompanying today’s press release. This release can also be accessed through the IR section of our website.
With that, I’ll now turn the call over to Byron.
Byron Pollitt – CFO
Thanks, Jack. Let me begin with my usual callouts and observations. First, we continue to experience solid constant dollar payment volume payment volume growth in the low double-digit range both in the US and in internationally. That said, we see no signs yet of any acceleration in economic recovery and cross-border volume growth remained soft in the mid-single-digits.
Turning to revenue, as expected and previewed on our call last quarter, revenue growth further moderated growing 7% year-over-year on a constant dollar basis or 5% nominally which reflects the two percentage points of FX headwind we have experienced since the beginning of the fiscal year.
As a reminder, the current Q3 is lapping 17% nominal revenue growth in the prior year quarter which benefited from a number of favorable one-time adjustments.
It is worth noting that the international revenue grew it only 1% this quarter despite cross-border constant dollar volume growth of 7%. While unfavorable FX is a partial explanation, the bigger impact is the significant reduction in currency volatility which has a direct impact on our international revenues. We expect both of these factors to reverse overtime.
Looking ahead to Q4, we expect a rebound in nominal revenue growth on the order of 2 to 3 percentage points compared to Q3. This rebound is about 2 percentage points than we anticipated at the time of our last earnings call primarily due to a 1 percentage point drop in cross-border transaction growth and unusually low levels of volatility across a broad range of currencies.
So, that means for the full fiscal year 2014, we now expect revenue growth in the 9% to 10% range on a constant dollar basis with guarded optimism that the moderation in cross-border volume growth has dropped. After FX impacts that translates into nominal revenue growth of 7% to 8%.
Client incentives for the fiscal third quarter came in lower than we had anticipated at our last earnings call due primarily to the timing associated with several major deals which have now been either signed or we expect to sign in the fiscal fourth quarter. With this in mind, we are narrowing our full year guidance for client incentives as a percent of gross revenue to around 17% from the prior range of 16.5% to 17.5%. Let me also point out that mathematically this puts the fourth quarter at north of 19%.
In terms of EPS, on a fiscal year 2014 basis, we are narrowing our guidance for diluted earnings per share to be in the 17.5% to 18.5%. Lastly, we remain confident in our future growth prospects and fully committed to returning excess cash to our shareholders. To this end, we repurchased a total of $5.6 million shares during the quarter at an average price per share of $207 in change resulting in a total cost of $1.2 billion. This leaves an outstanding open to buy of $1.9 billion at the end of June and as always we will take advantage of market movements to repurchase at attractive prices.
Now, let’s turn to payment volume and transaction growth. Let me start with what I stated last quarter though we are seeing a sustained economic recovery, there are no signs yet of acceleration either domestically or internationally. Global payment volume growth for the June quarter in constant dollars was 11%, a 1 percentage point decline from the March quarter, the U.S. grew 10% and international grew 13%.