Nov. 3 (Bloomberg) -- MasterCard Inc., the world’s second- biggest payments network, fell in New York trading after cost cuts aided a jump in third-quarter profit, prompting one analyst to question the quality of earnings.

The shares dropped as much as 5.9 percent in the first hour of trading, the most since April 20, after the company said it cut advertising and marketing spending about 30 percent in the period. Chief Executive Officer Robert Selander said in July expenses would be “significantly higher” in the second half.

“MasterCard did beat the number, but a lot of that was on much lower than expected advertising expenditures,” said Robert Dodd, an analyst with Morgan Keegan Inc. Adjusted income was $3.48, compared with the $2.93 average estimate of 26 analysts surveyed by Bloomberg.

Marketing and advertising expenses totaled $173.8 million in the quarter, a 29.4 percent drop from the year-earlier period, Purchase, New York-based MasterCard said in a statement. Marketing costs in the current quarter may climb 20 percent, Chief Financial Officer Martina Hund-Mejean told analysts during a conference call. Operating expenses, excluding the impact of legal settlements, fell 13.3 percent.

Visa Inc., the largest payment network, reported stronger spending growth in October and offered a more detailed 2010 forecast when it posted its fiscal fourth-quarter results Oct. 27, Dodd said. San Francisco-based Visa said adjusted income climbed 32 percent to $552 million in the period ended Sept. 30.

MasterCard fell $3.45, or 1.6 percent, to $219.20 at 4:15 p.m. in New York Stock Exchange composite trading, and earlier touched $209.57. The shares have gained 53 percent this year.

Shelf Registration

MasterCard will file a shelf registration statement, allowing it to raise capital in debt or equity markets, as the company seeks more financial “flexibility,” Selander said today in a telephone interview.

The registration isn’t intended to “signal anything” with respect to a federal antitrust lawsuit that merchants filed against MasterCard and Visa over fees paid by retailers to card- issuing banks, Hund-Mejean said.

If the merchants win a judgment or secure a settlement, MasterCard could tap its “highly liquid” balance sheet, Selander said.

“We have a very strong balance sheet which can be used for contingencies,” he said. “Cash and marketable securities at the end of the quarter were about $2.9 billion. We have over $3 billion in equity and in the quarter we generated over $300 million in cash from operations.”

The litigation likely will take “years” to resolve, Selander said during the conference call.

MasterCard said net income in the period was $452.2 million, or $3.45 a diluted share, compared with a year-earlier loss of $193.6 million, or $1.48, that stemmed from the settlement of a separate antitrust lawsuit filed by Riverwoods, Illinois-based Discover Financial Services. Adjusted income, which excludes one-time items, was $456 million.

Shift to Plastic

Processed transactions during the quarter rose 7.6 percent to 5.8 billion, the company said. Revenue rose 2 percent to $1.36 billion, ahead of the $1.35 billion average estimate by analysts in the Bloomberg survey.

Consumers’ continuing shift from cash and checks to cards, particularly debit products, helped MasterCard and Visa weather the recession as the U.S. jobless rate rose to the highest level in 26 years. They’ve fared better than banks that issue their cards because networks don’t make loans, insulating them from record defaults.

Credit, charge, debit and other cards will handle 54 percent of U.S. purchases by 2012, compared with less than half in 2007, according to the Nilson Report, an industry newsletter based in Carpinteria, California.

Lenders such as Bank of America Corp. and Citigroup Inc. have cut off some credit-card accounts to curb defaults, pushing more consumers toward debit cards, which deduct money electronically from a user’s checking account. MasterCard and Visa collect processing fees regardless of the payment method.

To contact the reporter on this story: Peter Eichenbaum in New York at peichenbaum@bloomberg.net

Last Updated: November 3, 2009 17:40 EST