Why Visa Earnings Are Leaving Investors Cool

Visa Inc. (NYSE: V) reported first-quarter fiscal 2018 results after markets closed Thursday. The credit card issuer posted adjusted diluted earnings per share (EPS) of $1.08 and revenues of $4.86 billion. In the first quarter of 2017, Visa reported adjusted EPS of $0.86 on revenues of  $4.46 billion. Consensus estimates had called for EPS of $0.99 and $4.85 billion in revenue.

On a GAAP basis, Visa’s EPS totaled $1.07 per share. Two special items related to recent tax law changes accounted for about $20 million in net income and one penny in EPS.

During the quarter, the company repurchased some 15.5 million shares of common stock at an average price of $110.67 per share for a total of $1.7 billion. Visa also approved a new buyback program for $7.5 billion and, including the remaining funds in the previous plan, has a total of $9.1 billion available to repurchase common stock.

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CEO Alfred F. Kelly Jr. said:

We are off to a solid start in our first fiscal quarter of 2018 as we saw healthy growth in all key business drivers across the globe. In particular, momentum accelerated in the U.S. driven by strong holiday spending and ecommerce growth. Given the recent benefits from the Tax Cut and Jobs Act, we are evaluating ways to further invest in our business, our people and our communities to digitize payments and contribute to overall economic growth.

In the company’s outlook for the 2018 fiscal year, Visa guided annual net revenue growth in the high single digits on a nominal basis and a positive currency exchange impact of 0.5% to 1.0%. The company expects its annual operating margin to be in the high 60% range and diluted EPS growth in the mid 50% range and at the high end of the mid-20% range on an adjusted basis. Full-year 2017 adjusted EPS totaled $3.48.

Analysts are looking for second-quarter revenues of $4.81 billion and adjusted EPS of $0.99. For the full year, the consensus estimates call for revenues of $20.23 and adjusted EPS of $4.24.

Investors have been cool to the results, likely because the company is planning to spend some of its tax windfall on something besides higher dividends and share buybacks.

Visa’s stock traded down about 1.3% in Friday’s premarket to $124.13, after closing at $125.72 on Thursday. The 52-week range is $84.88 to $126.88. The 12-month consensus analyst price target was $132.09 before last night’s report.

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