Visa Profit Exceeds Estimates as Consumers Boost Card Spending

Joseph Saunders, chief executive of Visa Inc. Photographer: Jin Lee/Bloomberg

 

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July 29 (Bloomberg) -- Jason Kupferberg, an analyst at UBS AG, talks with Bloomberg's Susan Li about Visa Inc.'s financial results and outlook. Visa, the world’s biggest payments network, posted a fiscal third-quarter profit that exceeded most Wall Street estimates for a 10th straight quarter as more consumers paid with plastic. Kupferberg, speaking from New York, also discusses the Federal Reserve's new debit-card regulations aimed at Visa and No. 2 network MasterCard Inc. (Source: Bloomberg)

Visa Inc., the world’s biggest payments network, posted a fiscal third-quarter profit that exceeded most Wall Street estimates for a 10th straight quarter as more consumers paid with plastic.

Net income for the three months ended June 30 was $716 million, or 97 cents a share, compared with $729 million, or 96 cents, in the same period a year earlier, the San Francisco- based company said today in a statement. The average estimate of 31 analysts surveyed by Bloomberg was 93 cents. The year-earlier results included a one-time gain of $237 million from the sale of an investment.

Chief Executive Officer Joseph W. Saunders may struggle to match that performance next year, when the Federal Reserve imposes new debit-card regulations aimed at Visa and No. 2 network MasterCard Inc. The rules will cap “swipe” fees, or interchange, charged to merchants on each transaction and make it easier for rival debit networks, such as one operated by KKR & Co. subsidiary First Data Corp., to gain market share.

“While it is too early to fully and accurately gauge the impact of the legislation, Visa has demonstrated an ability to manage our business through periods of change,” said Saunders, 64, in the statement.

Visa said it’s sticking to a 2010 forecast for net revenue growth at the high end of an 11 percent to 15 percent range. Diluted earnings per share are expected to grow by more than 20 percent annually this fiscal year and next, the company said.

Sharing ‘Pain’

Visa and MasterCard, based in Purchase, New York, set interchange rates and pass the money to card-issuing banks including Bank of America Corp., JPMorgan Chase & Co. and Citigroup Inc. The legislation could reduce annual interchange revenue at Charlotte, North Carolina-based Bank of America by as much as $2.3 billion, Chief Financial Officer Charles H. Noski said this month.

“Banks could seek to renegotiate their contracts with Visa and MasterCard to share the economic pain associated with lower interchange fees, which would potentially threaten a major revenue stream,” said Stephen Sohn, an analyst with Moody’s Investors Service, in a July 26 report.

The contracts are the biggest revenue sources for the networks. They generated $3.17 billion, or 46 percent of net revenue, for Visa in fiscal 2009, and $2.38 billion, or 47 percent, at MasterCard last year. Visa’s third-quarter service revenue climbed 13 percent to $873 million.

‘Powerful Force’

The number of processed transactions jumped 14 percent to 11.7 billion as spending on Visa credit and debit cards amounted to $803 billion, a 14 percent increase when adjusted for currency fluctuations, the company said. Cross-border volumes climbed 17 percent, it said.

“The global shift from cash and checks to digital currency is a powerful force that continues unabated, providing tangible benefits to consumers, merchants, and governments worldwide,” Saunders said.

That trend may mitigate the cost of the legislation, Sohn said.

Card-based and electronic payments, which may have exceeded cash and checks for the first time in 2009, will probably account for about 64 percent of an estimated $9 trillion in U.S. consumer transactions by 2013, according to the Nilson Report, an industry newsletter based in Carpinteria, California.

Visa fell $1.43, or 1.9 percent, to $75.18 at 4 p.m. in New York Stock Exchange composite trading. The stock has dropped 14 percent this year.

MasterCard, which is scheduled to report second-quarter results on Aug. 3, declined 1.9 percent to $210.09.

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