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Visa Cut Its 2016 Revenue Forecast, but Profits Beat Expectations

April 22, 2016, 8:41 AM UTC
General Views Ahead Of Visa Earnings Reports
Visa Inc. credit and debit cards are arranged for a photograph in Washington, D.C., U.S., on Monday, Oct. 24, 2011. Visa Inc. is expected to release third-quarter earnings on Oct. 26. Photographer: Andrew Harrer/Bloomberg via Getty Images
Photograph by Bloomberg via Getty Images

Visa, the world’s largest payments network operator, lowered its full-year revenue forecast, blaming lack of improvement in cross-border spending.

Shares of the company, which is amending its deal to buy Visa Europe, fell 4.7% to $77 in after-market trading on Thursday. The stock—a Dow component—had risen 4.2% this year.

Chief Financial Officer Vasant Prabhu on a conference call blamed weaker U.S. payment volumes due to gas prices and weakness in large commodity-based economies like Brazil for the lowered forecast.

Visa (V), which reported a better-than-expected profit for its second quarter ended March 31, said it swapped the earn-out option in its deal to buy Visa Europe for an increased cash consideration, following feedback from the European Commission.

“The elimination of that earn out means the European banks can switch away from Visa sooner than they would have previously,” said Gil Luria, a Wedbush Securities analyst.

The cash consideration of the deal will be increased by 1.75 billion euros ($1.97 billion), the company said.

 

Visa said last year it would pay 16.5 billion euros upfront in cash and convertible preferred stock, with potential for an additional payment of up to 4.7 billion euros based on revenue targets four years after the deal closes.

The company said it expects its full-year revenue to grow between 7% to 8%, lower than its previous forecast of high single-digit to low-double digit.

On a constant-dollar basis, adjusted earnings per Class A share is now expected to grow in low single-digits, compared with its previous forecast of low-end of mid-teens.

The company’s net income rose 10% to $1.71 billion in the second quarter, helped by a 10.5% jump in U.S. payment volumes.

Payments on Visa’s U.S. cards account for more than half of the company’s total transaction volume.

Excluding items, the company earned 68 cents per Class A share, beating analysts’ average estimate by a cent, according to Thomson Reuters I/B/E/S.

Total operating revenue rose 6.4% to $3.63 billion.