01—Abstract
Summary
Summary of the 10-Q filed July 26, 2018. Cited figures are marked; the original filing is the authoritative source.
Mastercard Inc. (MA) reported robust financial performance for the second quarter and first half of 2018, demonstrating strong revenue growth and profitability.
Net revenue saw a significant increase of 20%a and 25% for the quarter and half-year, respectively, driven by consistent growth in switched transactions, cross-border volume, and gross dollar volume. The company also benefited from the adoption of new revenue recognition standards and strategic acquisitions, which contributed positively to the top-line results. Profitability remained strong, with net income up 33% and 36% for the respective periods.
This was supported by effective management of operating expenses, which grew at a slower pace than revenue, especially when excluding special items and the impact of foreign currency. A key factor influencing profitability was the significant decrease in the effective income tax rate, largely due to the U.S. Tax Reform enacted in late 2017, which reduced the U.S. corporate income tax rate. Investors will likely note the company's ongoing commitment to returning capital to shareholders through substantial share repurchases and dividend payments, indicating confidence in future cash flows and financial health.
02—Key points
Key Highlights
- Net revenue increased by 20% to $3.7 billion for the second quarter of 2018 and by 25% to $7.2 billion for the first six months of 2018, compared to the prior year periods.
- Net income rose by 33% to $1.6 billion for the second quarter and by 36% to $3.1 billion for the first six months of 2018.
- Diluted earnings per share (EPS) increased by 36% to $1.50 for the second quarter and by 39% to $2.91 for the first six months of 2018.
- Operating expenses grew at a slower rate than revenue, with adjusted operating expenses (excluding special items and currency impacts) increasing by 7% for the quarter and 20% for the half-year.
- The effective income tax rate decreased significantly to 18.3% for the quarter and 17.8% for the half-year, primarily due to the U.S. Tax Reform reducing the corporate tax rate.
- Mastercard repurchased approximately 16.2 million shares of common stock for $2.9 billion during the first six months of 2018, and paid dividends totaling $525 million.
- Significant provisions for litigation settlements were recorded, totaling $225 million in the second quarter and $342 million for the first six months, impacting reported operating expenses.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2018filed July 26, 2018Financial Statements
Q2 FY2018 against Q2 FY2017
| Line item | Q2 FY2018Q2 FY2017 | Change |
|---|---|---|
| Revenue | $3.67B$3.05B | +20.0% |
| Operating Expenses | $1.73B$1.40B | +23.5% |
| Operating Income | $1.94B$1.65B | +17.1% |
| Interest Expense | $48.00M$39.00M | +23.1% |
| Net Income | $1.57B$1.18B | +33.3% |
| EPS (Basic) | $1.50$1.10 | +36.4% |
| EPS (Diluted) | $1.50$1.10 | +36.4% |
| Shares Outstanding (Basic) | 1.04B1.07B | −2.5% |
| Shares Outstanding (Diluted) | 1.05B1.07B | −2.4% |
05—Questions
Frequently Asked Questions
What was the primary driver of Mastercard's revenue growth in Q2 2018?
Mastercard's revenue growth in Q2 2018 was primarily driven by a 20% increase in net revenue, fueled by strong performance in switched transactions (up 17%), cross-border volume (up 19%), and gross dollar volume (up 14%). The adoption of new revenue recognition standards and prior year acquisitions also contributed to the top-line growth.
How did the U.S. Tax Reform impact Mastercard's financial results?
The U.S. Tax Reform enacted in late 2017 significantly reduced Mastercard's effective income tax rate. The rate for Q2 2018 was 18.3%, down from 27.7% in the prior year period. This decrease is largely attributed to the lower U.S. corporate income tax rate from 35% to 21% and discrete benefits for share-based payments, partially offset by other aspects of the reform.
What is the significance of the litigation provisions mentioned in the filing?
Mastercard recorded significant provisions for litigation settlements during the first half of 2018, totaling $225 million in Q2 and $342 million for the six-month period. These provisions, particularly for U.S. merchant class litigation, are treated as 'Special Items' and are excluded from their non-GAAP adjusted results to provide a clearer view of ongoing operational performance. Investors should note these provisions impact reported operating expenses but are managed separately by the company.
How is Mastercard returning capital to shareholders?
Mastercard demonstrated a strong commitment to returning capital to shareholders. During the first six months of 2018, the company repurchased approximately 16.2 million shares of its common stock for $2.9 billion. Additionally, it paid quarterly cash dividends totaling $525 million during the same period.
06—Continue