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Visa sees fiscal Q3 net income drop after nonrecurring charges related to Visa Europe

Visa Inc.reported fiscal third-quarter net income of $412 million, or 17 cents per classA common share, compared with $1.70 billion, or 69 cents per class A common share,in the prior-year period.

The company recorded certain nonrecurring special items thathad no impact on operating performance, including a loss of $1.9 billion in operatingexpense related to the effective settlement of the framework agreement between Visaand Visa Europe after completion of the deal.

The special items recorded during the period also include $152million in operating expense for acquisition-related costs, including $60 millionof transaction expenses recorded in professional fees and $92 million of U.K. stampduty recorded in general and administrative expenses; $145 million gain in othernonoperating income related to euro-denominated bank balances linked to the up-frontcash consideration for the Visa Europe deal; and a $42 million loss in other nonoperatingincome related to currency forward contracts that mitigate part of the foreign currencyexchange rate risk related to the cash consideration for the deal.

Excluding these special items, adjusted net income for the quarterwas $1.6 billion, with adjusted EPS of 69 cents.

The S&P Capital IQ consensus GAAP EPS estimate for the quarterwas 66 cents.

Total operating revenues for the quarter were $3.63 billion,compared with $3.52 billion in the prior-year quarter. Total operating expensesfor the fiscal quarter were $3.20 billion, up from $1.26 billion in the fiscal thirdquarter of 2015.

Visa repurchased 21.7 million class A common shares during thequarter at an average price of $77.53 per share using $1.7 billion of cash on hand.In addition, the board has authorized a new $5.0 billion class A common share repurchaseprogram. Visa currently has $7.3 billion available to buy back stock.

Visa also updated its outlookfor the fiscal full year 2016 to include Visa Europe. The company still expectsannual net revenue growth to be a 7% to 8% range on a constant dollar basis, excludingEurope, with an expectation of about 3 percentage points of negative foreign currencyimpact, an incremental 3 percentage points to 4 percentage points from Europe inthe fiscal full year and an incremental 13 percentage points to 14 percentage pointsfrom Europe in fiscal fourth quarter.

Client incentives as a percent of gross revenues are still anticipatedto be about 18.5%, compared to the previously expected range of 17.5% to 18.5%.Annual operating margin is expected to be in the mid-50s versus the mid-60s expectedpreviously. Annual free cash flow is still expected to be about $7 billion.

The anticipated annual adjusted EPS growth is expected to bein the negative low single digits on a constant dollar basis, with an expected negativeforeign currency impact of about 4 percentage points and Europe net income expectedto offset debt interest expense in fiscal fourth quarter.

Previously, the company expected annual adjusted earnings perclass A common share growth to be in the low double digits on a constant dollarbasis, with an expectation of about 4 percentage points of negative foreign currencyimpact.