Mastercard Incorporated's CEO Discusses Q4 2011 Results - Earnings Call Transcript

Mastercard Incorporated (MA)

Q4 2011 Earnings Call

February 02, 2012 9:00 am ET

Executives

Barbara Gasper -

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Ajay Banga - Chief Executive Officer, President, Director, Member of Executive Committee, Chief Executive Officer of MasterCard International and President of Mastercard International

Martina Hund-Mejean - Chief Financial Officer and Member of Executive Committee

Analysts

Sanjay Sakhrani - Keefe, Bruyette, & Woods, Inc., Research Division

Glenn Fodor - Morgan Stanley, Research Division

Thomas C. McCrohan - Janney Montgomery Scott LLC, Research Division

Tien-Tsin T. Huang - JP Morgan Chase & Co, Research Division

Christopher Brendler - Stifel, Nicolaus & Co., Inc., Research Division

David Togut - Evercore Partners Inc., Research Division

Craig J. Maurer - Credit Agricole Securities (USA) Inc., Research Division

Glenn Greene - Oppenheimer & Co. Inc., Research Division

Julio C. Quinteros - Goldman Sachs Group Inc., Research Division

David S. Hochstim - Buckingham Research Group, Inc.

Darrin D. Peller - Barclays Capital, Research Division

Bill Carcache - Nomura Securities Co. Ltd., Research Division

Andrew W. Jeffrey - SunTrust Robinson Humphrey, Inc., Research Division

Jason Kupferberg - Jefferies & Company, Inc., Research Division

Robert P. Napoli - William Blair & Company L.L.C., Research Division

Rod Bourgeois - Sanford C. Bernstein & Co., LLC., Research Division

Bryan Keane - Deutsche Bank AG, Research Division

Greg Smith - Sterne Agee & Leach Inc., Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Fourth Quarter and Full Year 2011 MasterCard Financial Results. My name is Cesenia, and I'll be your operator for today. [Operator Instructions] And now I would like to turn the conference over to Barbara Gasper. Please proceed.

Barbara Gasper

Thank you, Cesenia. Good morning, everyone, and thank you, all, for joining us today, either by phone or webcast, for our discussion about our fourth quarter and full year 2011 results. We also appreciate your patience with the technical difficulties this morning, and I'd like to say that we are going to extend the call beyond our normal length just to accommodate everybody for your patience.

With me on the call today are Ajay Banga, our President and Chief Executive Officer; and Martina Hund-Mejean, our Chief Financial Officer. Following comments from Ajay and Martina, we will open up the call for your questions.

This morning's earnings release and the slide deck that will be referenced on this call can be found in the Investor Relations section of our website, mastercard.com. The earnings release and the slide deck have also been attached to an 8-K that we filed with the SEC earlier today. A dial-in replay of this call will be available for one week, through February 9.

Finally, as set forth in more detail in today's earnings release, I need to remind everyone that today's call may include some forward-looking statements about MasterCard's future performance. Actual performance could differ materially from what is suggested by our comments today. Information about the factors that could affect future performance are summarized at the end of our press release, as well as contained in our recent SEC filings.

With that, I will now turn the call over to our CEO, Ajay Banga. Ajay?

Ajay Banga

Thank you, Barbara. Good morning, everybody. Before Martina gets into the details of our results, let me start, as usual, with some high-level comments. In the fourth quarter, we saw net revenue growth of 20% as reported or 21% on a constant-currency basis. And that helped to fuel operating income growth of 34%, excluding the special item for the litigation charge.

And as you see on Slide 2, this quarter's performance capped off a very strong 2011 for us, with net revenue and EPS growth ahead of our 3-year objectives. We had a strong operational performance with annual growth dollar volume, cross-border volume and processed-transaction growth rate in the mid to high teens, all driven by very solid local execution. And we delivered an operating margin a bit ahead of our 50% minimum target, while actually finding a way to continue to invest in strategic initiatives for the long-term growth of our business.

We have some decent economic news in the United States lately with the unemployment rate dropping to 8.5%, consumer confidence increasing over the past few months to an 8-month high. This comes as consumer balance sheets have improved, following a period of deleveraging. And all of this has had a positive impact on consumer spending as is reflected in our SpendingPulse data, which showed growth in December for all the 11 retail sectors that we track. Now we saw continued strength in our own U.S. volumes, which were up about 12% for the fourth quarter. But this positive news remains tempered by the uncertainty that persists in the picture of the unemployment rate and housing prices. And you should also remember that U.S. retail sales, as well as our own U.S. volumes, begin to hit tougher year-over-year comparisons, actually, that started late in 2011, and it'll persist through the year 2012.

In Europe, our business remains strong in spite of another quarter of negative headlines regarding the macro situation there. Fourth quarter volumes grew almost 17%, in line with the growth we saw with the prior 2 quarters, driven by double-digit cross-border volume growth. The addition of domestic processing in The Netherlands continues to drive significant process transaction growth in the region.

You should remember that our European region is comprised of nearly 60 markets, extending far beyond Western Europe and the Eurozone. In fact, the majority of our revenue comes from the relatively stronger economies of Northern and Eastern Europe, where we continue to see strong growth in both processed volume as well as revenue, with particular strength in France and Germany and The Netherlands.

The countries most often talked about as troubled, Portugal, Italy, Ireland, Greece, Spain account for less than 5% of our 2011 global net revenue. In January, processed volume growth in these countries, these so-called troubled countries has decelerated only slightly from the mid-teens level that we saw over the previous several months. That said, in the Eurozone, we have seen a decline in consumer sentiment in the third and fourth quarters of 2011.

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