MasterCard Inc. (MA), the world’s second- biggest payments network, climbed the most in 2 1/2 years in New York trading after second-quarter profit beat analysts’ estimates, helped by an increase in customers’ spending.
The stock gained $39.98, or 13 percent, to $338.47 at 4:15 p.m. on the New York Stock Exchange, the biggest jump since February 2009 and the highest since the company’s initial public offering in May 2006. Net income rose 33 percent to $608 million from the same period a year earlier, the Purchase, New York- based firm said today in a statement. Earnings per share of $4.76 exceeded the $4.23 average estimate of 29 analysts surveyed by Bloomberg as net revenue increased 22 percent to $1.7 billion.
MasterCard, led by Chief Executive Officer Ajay Banga, aims to gain a bigger share of the U.S. debit market as new rules on transaction fees and processing threaten to erode the dominance of larger rival Visa Inc. (V) Banga, 51, is also expanding MasterCard’s presence in emerging markets through acquisitions as U.S. consumer spending stagnates amid rising unemployment.
“Solid global performance, including strong increases in volume and processed transactions, fueled double-digit revenue growth this quarter,” Banga said in the statement.
MasterCard’s U.S. debit-card spending surged 19 percent to $98 billion from last year’s second quarter, and U.S. credit- card spending climbed 6.1 percent to $129 billion, according to the statement.
MasterCard’s stock has climbed 51 percent this year, compared with a 24 percent gain for San Francisco-based Visa, which posted net income of $1 billion on July 27.
Worldwide spending on MasterCard- and Maestro-branded cards climbed 16 percent to $608 billion in the second quarter, adjusted for currency fluctuations, the company said. Spending by consumers outside their home countries surged 19 percent. Processed transactions rose 17 percent to 6.6 billion.
Operating expenses rose 20 percent to $782 million, in part due to costs linked to acquisitions, MasterCard said. The company paid $526 million in October for DataCash Group Plc, a U.K. credit-card processor, to expand e-commerce offerings. In December, MasterCard said it would buy prepaid card-management assets from London-based Travelex Holdings Ltd. for $470 million.
Growth in Latin America and Asia Pacific was “really fueled by the secular change in people using less and less cash and checks, using more electronic forms of payments,” MasterCard Chief Financial Officer Martina Hund-Mejean said in a telephone interview after earnings were announced.
MasterCard repurchased about 1.5 million shares for approximately $387 million during the quarter, Hund-Mejean said today on a conference call with analysts. The company has spent about $1.1 billion on share buybacks so far this year and will continue to look at more repurchases, she said.
The Federal Reserve in June limited debit fees to 21 cents per swipe and will let issuers tack on 5 basis points of each transaction, or almost 2 cents based on the average debit ticket of $38. The central bank conditionally approved a 1-cent adjustment for lenders that follow certain fraud-prevention standards. The new fees are set to take effect Oct. 1, replacing a formula that averages 1.14 percent of the purchase price, or about 44 cents.
The new rule also requires card-issuers to give merchants the choice of at least two unaffiliated debit networks for transaction processing, which will prevent networks from negotiating exclusive deals with banks and threatens to erode Visa’s lead in the U.S. Visa processed $1.05 trillion in U.S. debit-card purchase transactions last year, more than triple MasterCard’s $333 billion, company data show.
“Being the smaller player in debit, MasterCard is in a completely different competitive situation,” Banga said on the call. “Ours is one of potential upside, not the need to defend a large incumbent position.”
MasterCard and Visa set fees on debit-card transactions, known as interchange, and pass the money to card-issuing banks, including JPMorgan Chase & Co. (JPM), Bank of America Corp. (BAC) and Wells Fargo & Co. (WFC)
American Express Co. (AXP), the biggest credit-card issuer by purchases, reported a $1.3 billion profit on July 21. Discover Financial Services (DFS), the fourth-biggest U.S. payments network, posted a second-quarter profit of $600 million.
Consumer spending in the U.S. unexpectedly fell in June for the first time in almost two years, the Commerce Department reported yesterday. U.S. unemployment is 9.2 percent.
“When you look at unemployment being above 9 percent, housing prices not really coming back to a good space, that will impact the mood and the consumer confidence,” Hund-Mejean said in the interview. “It’s impacting it today and it will impact tomorrow.”
To contact the reporters on this story: Donal Griffin in New York at Dgriffin10@bloomberg.net;