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MasterCard Profit Rises as Travel Spending Increases

MasterCard Declines
MasterCard Inc. CEO Ajay Banga is trying to reverse MasterCard’s loss of market share to larger rival Visa Inc. Source: MasterCard Inc via Bloomberg

MasterCard Inc., the world’s second-biggest payments network, posted a 31 percent increase in second-quarter profit as consumers used their cards more while traveling beyond their home countries.

Net income rose to $458 million, or $3.49 per diluted share, compared with $349.1 million, or $2.67, a year earlier, the Purchase, New York-based company said today in a statement. The average estimate of 31 analysts surveyed by Bloomberg was for earnings per share of $3.34.

Chief Executive Officer Ajay Banga, 50, who took over the top job last month, is trying to take market share from larger rival Visa Inc. as both companies continue to benefit from consumers’ shift from cash and checks to plastic.

“I feel optimistic about our future growth prospects,” Banga said today in a conference call with analysts. “The majority of our revenues come from outside of the United States, which as of now is showing faster growth.”

MasterCard fell $1.61, or 0.8 percent, to $200.91 at 4:15 p.m. in New York Stock Exchange composite trading. The shares have declined 22 percent this year.

Worldwide spending on MasterCard credit and debit cards climbed 7.9 percent to $493 billion, when adjusting for currency fluctuations, driven by 21 percent growth in Latin America, 15 percent in the Asia-Pacific, Middle East and Africa and 13 percent in Europe, MasterCard’s second-biggest market outside the U.S. Total card spending in the U.S. climbed 0.7 percent.

U.S. Outlook

“Our volume growth in Europe continues to remain healthy,” Banga said. “‘In the U.S., however, conflicting figures make it difficult to determine if we have moved into an economic recovery.”

Cross-border volume, a measure of card use outside customers’ home nations, climbed 15 percent and total operating expenses dropped 10 percent to $648 million.

Total processed transactions rose 0.1 percent to 5.62 billion, compared with the same period a year earlier, reflecting the loss of four debit-card portfolios during the past year. Excluding those contracts, total transactions climbed 10 percent on “a normalized basis,” Chief Financial Officer Martina Hund-Mejean said in a telephone interview.

Visa’s processed transactions climbed 14 percent to 11.7 billion in the three months ended June 30, the San Francisco- based company said last week.

MasterCard and Visa handled $2.45 trillion, or 82 percent, of U.S. consumer spending on general purpose cards last year, according to the Nilson Report, an industry newsletter. Cards and electronic payments account for more than half of U.S. consumer purchases, compared with 36 percent in 2003.

‘Swipe’ Fees

MasterCard can’t gauge how new limits on debit-card interchange, or “swipe” fees, will impact the company’s revenue and profit until the Federal Reserve devises the rules mandated by the Dodd-Frank Act, Banga said.

“We just have to wait for the Fed to develop the regulations and for our customers to react before we know the full implications both for the industry and for our company,” Banga said in the conference call.

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