Mastercard Incorporated, Q4 2009 Earnings Call, Feb 04, 2010 - NYSE:MA

NYSE:MA

Barbara Gasper, the Group Executive of Investor Relations at Mastercard, made the following statements during the Fourth Quarter and Full Year 2009 Earnings Conference Call:

1. Opening Remarks:

   • Thanked the operator and welcomed everyone to the call.
   • Acknowledged the attendees participating by phone or webcast.
   • Introduced Bob Selander, CEO; Martina Hund-Mejean, CFO; and Ajay Banga, President and COO, who were also present on the call.
   • Mentioned that after comments from Bob and Martina, the call would be opened for questions.

2. Presentation Details:

   • Noted that the earnings release and slide deck were available in the Investor Relations section of Mastercard's website, mastercard.com.
   • Mentioned that the earnings release and slide deck had been attached to an 8-K filed with the SEC.
   • Informed that a replay of the call would be posted on the website for one week until February 12.

3. Forward-Looking Statements Disclaimer:

   • Reminded everyone of the forward-looking statements disclaimer, stating that actual performance could differ materially from what was suggested by the comments made during the call.
   • Directed listeners to the press release and recent SEC filings for information about factors that could affect future performance.

4. Transition to Bob Selander:

   • Turned the call over to Bob Selander, the CEO of Mastercard, to provide opening remarks.

5. Question-and-Answer Session:

   • Announced the start of the question-and-answer period.
   • Requested participants to limit themselves to a single question with one follow-up to accommodate as many people as possible.
   • Invited the operator to begin the Q&A session.

6. Closing Remarks:

   • Thanked the operator and informed that they had time for one more question.

   • After the final question, thanked everyone for joining the call and concluded the presentation.

Robert W. Selander, the Former Executive Vice Chairman of the Board at Mastercard Incorporated, provided opening remarks and discussed the company's performance and outlook during the Q4 2009 Earnings Call on February 4, 2010. Below is a detailed summary of his comments:

Opening Remarks

• Q4 and Full Year 2009 Performance:

  • Robert expressed satisfaction with the company delivering another strong quarter of earnings results, indicating the underlying momentum of the business.
  • Net revenue growth was 6% on an as-reported basis and 2.2% on a constant currency basis.
  • Gross dollar volumes (GDV) grew 5.3% on a local currency basis.
  • Processed transactions and cross-border volumes returned to positive growth.
  • New and renewed deals had begun impacting the rebate and incentive line.
  • Total operating expenses increased, driven by higher marketing investments and severance charges.
  • Net income grew 21% for the quarter, excluding special items.

• Full Year 2009 Financial Results:

  • Net revenue growth of 2.1% on an as-reported basis and nearly 4% on a constant currency basis.
  • Excluding one-time items, the company delivered an operating margin improvement of 5.5 percentage points over 2008.
  • Adjusting for special items and the gain from the sale of the remaining interest in Redecard in 2008, net income grew approximately 27% for the year on a constant currency basis.
  • Steps were taken to improve expense management and resource alignment to ensure the company was well-positioned for growth as the global economy continued to improve.

• Economic Trends:

  • The U.S. GDP increased at an annual rate of 5.7% for Q4 2009, driven by exports and inventory building.
  • Personal consumption expenditures grew at only 2% for the same period, and the company remained cautious about the health of the U.S. consumer.
  • The Conference Board Consumer Confidence Index improved 2.3 points, signaling stable to slightly improving consumer confidence in the U.S.
  • Home prices were up for several months through November but remained much below 2007 levels, and home sales dropped sharply by 23%.
  • The unemployment rate had leveled off but remained high at 10%.
  • Consumers showed a wavering optimism, preparing for the economic slowdown to last longer than initially thought.

• European Trends:

  • The EU consumer sentiment indicator improved somewhat in December but remained slightly negative, reflecting a pessimistic outlook.
  • European business sentiment improved in December, reflecting an expected improvement in general economic activity.
  • The company remained cautiously optimistic in its outlook but did not expect meaningful global economic improvement until the second half of 2010.

Mastercard Spending Pulse Data

• U.S. Retail Sector:
  • Retail sales, excluding automobiles, increased 2.3% in the fourth quarter, supported by higher gasoline prices and a generally healthier holiday shopping season.
  • The 2009 holiday shopping season returned to a more traditional pattern with sales beginning on Black Friday and holding momentum through December.
  • E-commerce sales benefited from disruptive weather events, growing over 16% for the fourth quarter.
  • Retailers did not have to employ broad discounting, and inventories appeared more aligned with demand, potentially resulting in better financials for retailers.

Volume and Transaction Trends

• January 2010:
  • Cross-border volumes continued to improve across all regions, better than the low single-digit growth in Q4 2009.
  • Asia-Pacific demonstrated significant growth on a sequential basis, and U.S. cross-border volumes improved from low single-digit declines to slightly positive.
  • U.S. processed volume growth continued in the low single-digit range.
  • Processed transactions continued to grow in the mid-single-digit range, tempered by Maestro losses in the U.K.

Business Highlights

• Debit and Prepaid Examples:

  • Announced SunTrust chose Mastercard as its payments partner in debit, converting all of its debit card programs to Mastercard.
  • Renewed and extended agreements with Woodforest Bank and Comerica Bank.
  • ABN AMRO selected Mastercard's IPS processing platform for its prepaid business.
  • WestLB started issuing the first PAYBACK Maestro debit cards with the initial conversion of its private label portfolio.

• Innovative Platforms Group:

  • Announced the Mastercard in Control offering, enabling cardholders to set spending controls and receive real-time information about their accounts.
  • Announced mobile trials with Bank of Montreal and Research In Motion in Canada, and with Itau Unibanco and Redecard in Brazil.
  • Expanded the acceptance of PayPass for transit payments in several cities, including Turkey, the U.K., France, and Brazil.

• Closing Remarks:

  • Robert expressed optimism about the business momentum heading into the new year and looked forward to working with customers and merchant partners on future opportunities.

Martina Therese Sophie Hund-Mejean, the former Chief Financial Officer of Mastercard Incorporated, provided detailed insights into the company's financial performance during the Q4 and full year 2009 earnings call. Here is a comprehensive summary of her remarks:

Opening Remarks

• Financial Results Overview:
  • Fourth quarter net revenues grew 6% to $1.3 billion.
  • Constant currency basis net revenue growth was 2.2%.
  • Revenue increase was driven by pricing changes, cross-border volume growth, and processed transaction growth, tempered by an increase in rebates and incentives.

Expense Overview

• Operating Expenses:
  • Total operating expenses increased 9.8% for the quarter, driven by planned higher advertising and marketing spending and additional severance charges.
  • Foreign exchange contributed 3.2 percentage points to the increase.
  • Operating income was $468 million, with a quarterly operating margin of 36.1%.
  • Effective tax rate was 35.8%, lower due to a more favorable mix of earnings, a lower state tax rate, and a lower provision for tax reserves.

Revenue Breakdown

• Revenue Growth:
  • Net revenue grew 6% on an as-reported basis or 2.2% on a constant currency basis.
  • Domestic assessments increased 4.9%, primarily due to increased volumes, partially offset by the repeal of some European pricing.
  • Cross-border volume fees increased by 21.4% due to new pricing implemented during the quarter and volume growth.
  • Transaction processing fees increased 20.3%, driven by pricing changes and processed transaction growth.
  • Other revenues increased 8.8% due to compliance and penalty fees.

Rebates and Incentives

• Impact on Revenue:
  • Rebates and incentives increased 35.1%, with approximately two-thirds due to new and renewed customer agreements and one-third due to rebates associated with new cross-border pricing.
  • Represented 30.7% of gross revenues versus 25.7% in the previous year.

Expense Details

• Operating Expenses:
  • General and administrative expenses increased 1.6% with currency fluctuations accounting for 2.3 percentage points.
  • Advertising and marketing expenses increased by 25.1% due to investments in priority countries, media, customer marketing, and promotions.

Full Year Performance

• Net Income:
  • Net income was $1.5 billion or $11.19 per diluted share, excluding special items.
  • Excluding gains from the sale of Redecard investments in 2008, net income grew approximately 27%.
  • Full year operating margins improved 5.5 percentage points to 44.5%.

Outlook for 2010

• Revenue Growth Expectations:
  • Expected to be better than the 3.9% growth in 2009 but unlikely to reach the previous 12% to 15% average annual net revenue objective.
  • Some contribution from pricing, albeit at a lower level than in 2009.
  • Rebates and incentives as a percentage of gross revenue will continue to grow, influenced by new deals and the new cross-border pricing.

Expense Management

• Operating Expenses:
  • Expected to be flat to slightly down.
  • Advertising and marketing expenses expected to increase in the mid-single digits.
  • Spending in the first quarter will be the lowest of the year.

Closing Remarks

• Capital Structure:

  • Discussed the status of Class B stocks and plans for further conversion programs.

  • Provided guidance on the expected trajectory of rebates and incentives and the company's financial performance expectations for 2010.