MasterCard Climbs as Consumer Spending Drives Profit Gain

MasterCard Inc. (MA), the world’s second- biggest bank-card network, climbed the most in five months after posting a first-quarter profit that beat analysts’ estimates as consumers stepped up spending.

MasterCard rose as much as 4.2 percent in New York Stock Exchange composite trading, the top performance in the 74-member Standard & Poor’s 500 Information Technology Index. Net income climbed 24 percent to $562 million, or $4.29 a share, the company said today in a statement. The average estimate of 30 analysts surveyed by Bloomberg was $4.09 a share.

Chief Executive Officer Ajay Banga, 51, is buying back shares as rising consumer spending and a continuing shift from cash and checks to plastic spurs growth for Purchase, New York- based MasterCard and larger rival Visa Inc. (V) Household purchases in the U.S., which account for about 70 percent of the economy, rose at a 2.7 percent pace in the first quarter, the Commerce Department said last week.

“We had a strong start to 2011 despite the hardships experienced by many consumers and businesses due to natural disasters and political turmoil in several markets,” Banga said in the statement.

MasterCard advanced $7.09, or 2.6 percent, to $282.38 at 4:15 p.m., and earlier touched $286.80, the biggest advance since Dec. 1. The shares have gained 13 percent in the past year, compared with a 10 percent decline for Visa, based in San Francisco. Visa, which is scheduled to report fiscal second- quarter results on May 5, climbed 86 cents today to $80.

Net revenue at MasterCard increased 15 percent to $1.5 billion as operating expenses rose 9.4 percent to $665 million, according to the statement. Processed transactions rose 11 percent to 5.97 billion, according to an earnings supplement.

Unemployment, Inflation

“I still remain concerned about housing prices and unemployment in the United States, about food- and gas-price inflation around the world,” Banga said in a conference call with analysts after the company announced the results. “I remain cautiously optimistic.”

Worldwide spending on MasterCard- and Maestro-branded cards climbed 13 percent to $545 billion, based on local currencies, the company said. Cross-border volumes, a measure of spending by consumers outside their home countries, surged 19 percent.

The March 11 earthquake and tsunami in Japan and conflicts in the Middle East and North Africa have caused a shift in cross-border volume, MasterCard Chief Financial Officer Martina Hund-Mejean said today in a telephone interview.

“In Japan, inbound travel has been curtailed quite significantly, especially in the few weeks after the earthquake,” Hund-Mejean said. “Lots of people left Japan, so there’s an uptick going outbound.”

Egypt, Libya

As cross-border volumes declined in Egypt, Libya and Bahrain, they’ve climbed in Turkey and the United Arab Emirates, Hund-Mejean said.

Visa and MasterCard are fighting proposed U.S. caps on debit-card “swipe” fees, or interchange, amid investor concern the rules may damage the firms’ business model. The regulation, mandated by the Dodd-Frank Act of 2010, is weighing more on Visa, which processed $1.05 trillion in U.S. debit-card purchase transactions last year, more than triple MasterCard’s $333 billion, company data show.

The Federal Reserve has proposed capping debit interchange at 12 cents a transaction, replacing a formula that costs merchants an average of 1.14 percent of the purchase price, or about 44 cents. The caps may reduce annual revenue by $12 billion at U.S. banks that issue Visa and MasterCard debit cards, including Bank of America Corp. (BAC), Wells Fargo & Co. (WFC) and JPMorgan Chase & Co. (JPM)

‘Wait-and-See’

“This uncertainty has had very little impact on issuer decisions related to their debit portfolios,” Banga said in the conference call. “They are taking a wait-and-see attitude before making any changes.”

MasterCard repurchased 3.9 million shares valued at $1 billion this year through April 28, including 2.6 million shares valued at $654 million in the first quarter, according to the statement. The company may purchase an additional $1 billion in stock.

To contact the reporter on this story: Laura Marcinek in New York at lmarcinek3@bloomberg.net.

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net.

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