MasterCard Tops Forecasts; Shares Fall on Margin Growth Concerns
Credit card company MasterCard International reported a higher-than-expected fourth-quarter profit as spending volume jumped, but the credit card company warned that operating margin growth may slow in 2007, and its shares fell steeply .
MasterCard, which processes credit card payments for merchants, also said it was raising its quarterly dividend by 66.7% to 15 cents a share.
But the company said on a conference call that the nearly 3 percentage point improvement in its 2006 operating margins excluding items could be difficult to match in 2007, spurring heavy selling in its stock.
MasterCard shares have more than doubled since the company went public in May. They trade at about 27 times 2007 earnings even after Friday morning's declines.
Many of the company's peers trade at about 20 times 2007 earnings, said analyst Joseph Dickerson of Atlantic Equities in London.
"I think MasterCard's valuation does not reflect reality," Dickerson said.
In its second full quarter since going public in May, MasterCard said it earned $40.9 million, or 30 cents a share, after a year-ago loss of $52.9 million, or 39 cents a share.
Excluding a litigation settlement, the company said it would have reported fourth-quarter earnings of 31 cents a share.
On average, analysts polled by Thomson Financial were expecting earnings of 17 cents a share.
Revenue rose 17% to $839.2 million from $715.9 million.
"The key was, volumes were very strong," said analyst Sanjay Sakhrani of Keefe, Bruyette & Woods in New York.
Advertising and marketing expenses fell 8.5% to $352.9 million.