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Visa Manages to Lower Expenses in Fiscal 3Q16

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Jul. 26 2016, Updated 8:07 a.m. ET

Low expenses, greater margins

Visa has always maintained a proactive expense management program, which has helped it maintain its attractive operating margin of above 60% consistently for years. Major expenses that constitute its operational activities are personnel, marketing, network and processing, and professional fees.

Expense for the quarter fell by 7% and remained flat year-to-date versus 2015. Lower personnel and marketing costs contributed to lower-than-projected expenses in the quarter, falling by 10% and 16%, respectively, on a year-over-year basis. The company reported a healthy operating margin of 68% during fiscal 3Q16.

Visa saw its operating revenue rise by 3% and its operating income rise by 9% in fiscal 3Q16 compared to fiscal 3Q15. The company’s operating expenses fell by 7% during the same period, mainly due to lower personnel and marketing costs partially offset by higher general and administrative costs.

Visa achieved total revenue of $13.9 billion in the last fiscal year. Here’s how some of Visa’s peers in the payment-processing industry fared in terms of revenue:

  • Mastercard (MA): $9.5 billion
  • American Express (AXP): $35.9 billion
  • Discover Financial Services (DFS): $7.6 billion

Together, these companies account for 2.3% of the SPDR Dow Jones Industrial Average ETF (DIA).

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Road map ahead

Visa’s management has laid out the guidance for its 4Q16 performance, expecting to achieve revenue growth of 5% to 6%. This is in line with the previous quarters for fiscal 2016 with a 3% of negative foreign currency impact.

Visa expects 2% to 3% expense growth for legacy Visa in 4Q16 from marketing and higher technology project spending related to the Rio Olympics. Client incentives are expected to be ~18.5% in order to compete against other major players in the industry

Visa’s EPS (earnings per share) growth for fiscal 2016 is expected to be in the low end of the mid-teens. The negative impact from foreign currency is expected to be 4%. For the year, the company expects free cash flow of $7 billion.

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