Visa Falls After Warning of Europe Deal Delay, Trimming Forecastby
Visa Inc. fell in New York trading after the payments network said its purchase of Visa Europe Ltd. may be delayed and the company lowered its revenue growth forecast.
The shares slid 2.6 percent to $78.66 at 9:37 a.m., paring gains for the year to 1.7 percent.
Visa’s acquisition of its closely held European counterpart may not be completed until after June 30 as the company agreed to amend the terms of the deal following feedback from the European Commission, the Foster City, California-based firm said Thursday in a statement before reporting fiscal-second quarter results. Visa also lowered its top-line growth estimates for fiscal 2016 to 7 percent to 8 percent on a constant dollar basis, from a “high single-digit to low double-digit” range.
“We see the narrowing of guidance to the low-end of the company’s prior range as being driven by timing issues” from recent co-brand deals with Costco Wholesale Corp. and United Services Automobile Association, Darrin Peller, a Barclays Plc analyst, said in a note to clients.
Andrew W. Jeffrey, a SunTrust Robinson Humphrey analyst, said in a note that he was “surprised” by the forecast, but added, “Any near-term revenue growth deceleration is cyclical and, in our opinion, management’s guidance seems conservative.”
Visa’s Europe transaction has been closely watched amid speculation as to whether the companies, which split in 2007 ahead of the U.S. firm’s initial public offering, would reunite. The lack of meaningful contributions to earnings from Europe has long been seen as a weakness for Visa and an advantage for smaller competitor MasterCard Inc., which owns its European business.
Under the altered agreement, Visa will boost the cash consideration by 1.75 billion euros ($1.98 billion), with 750 million euros of that sum due at closing and the rest on the third anniversary of the deal’s completion, according to the statement. That replaces a so-called earn-out, in which a portion of the sale price would be tied to results after the transaction is consummated. The terms of the original contract, reached in November for as much as 21.2 billion euros, remained otherwise unchanged, Visa said.
“We think this is a good outcome for both parties,” Chief Executive Officer Charlie Scharf said on a call with analysts. “We feel terrific about our future together and we obviously know more now than we knew when we first agreed to the deal.”
Net income for the period ended March 31 climbed 10 percent to $1.71 billion, or 71 cents a share, from $1.55 billion, or 63 cents, a year earlier, Visa said in a separate statement. Adjusted profit, which excludes a $116 million gain from currency hedging, was 68 cents a share, beating by one cent the average estimate of 32 analysts surveyed by Bloomberg.
Revenue rose 6.4 percent in the quarter to $3.63 billion from a year earlier, beating analysts’ estimates, while operating expenses climbed 5.7 percent to $1.19 billion, the company said. Payments volume advanced 12 percent to $1.3 trillion on a constant dollar basis, and cross-border volume, a measure of spending abroad, climbed 5 percent, according to the statement.