Visa Beats Estimates as Global Credit-Card Spending Rises

Visa Earnings
Pedestrians pass beneath adverts for Visa Inc. next to the Olympic Park in London on July 25, 2012. Photographer: Chris Ratcliffe/Bloomberg

Visa Inc., the world’s biggest payments network, posted a fiscal third-quarter profit excluding legal costs that beat analysts’ estimates as card spending rose.

Adjusted net income for the three months ended June 30 climbed to $1.06 billion, or $1.56 a share, from $883 million, or $1.26, a year earlier, the San Francisco-based company said yesterday in a statement. The average estimate of 34 analysts surveyed by Bloomberg was $1.45 a share. The firm had a net loss of $1.84 billion when including a $4.1 billion provision tied to its settlement this month of a U.S. antitrust lawsuit.

Visa, led by Chief Executive Officer Joseph W. Saunders, 66, has benefited as consumers shift from cash to electronic payments, while parrying legal and regulatory threats to its business. Visa, MasterCard Inc. and some of the biggest U.S. banks agreed this month to settle the suit brought by merchants who accused financial firms of rigging credit-card fees.

“Visa once again reported solid global growth in payments volume, cross-border transactions and processed transactions outside the U.S.,” Saunders said in the statement. “We are pleased that we were able to come to a resolution in the merchant litigation.”

The accord includes $6.6 billion in payments to retailers and a temporary cut in fees that banks earn on each transaction. Visa’s $4.4 billion share of the settlement would be covered by an escrow account established in cooperation with U.S. banks that owned the company before its 2008 initial public offering. Purchase, New York-based MasterCard, which reports results next week, said the settlement would cost it $790 million.

Share Repurchases

Operating revenue rose 10 percent to $2.57 billion, beating the $2.52 billion estimate of 29 analysts.

The company authorized a new $1 billion stock repurchase program after spending $461 million in the quarter to buy back about 4 million shares at an average of $115.51 each.

Visa climbed 2.6 percent to $125.42 at 9:32 a.m. in New York. The shares advanced 37 percent in the past 12 months through yesterday, the third-best performance in the 71-company Standard & Poor’s 500 Information Technology Index.

Visa updated its profit outlook, saying annual earnings-per-share growth would be in the “low twenties,” up from a May forecast of “high teens to low twenties,” according to the statement.

Processed Transactions

Worldwide spending on Visa payment cards climbed to $979 billion, a 6.3 percent increase when adjusted for currency fluctuations. Processed transactions rose 1 percent to 13.1 billion. Cross-border volume, a measure of spending by cardholders outside their home countries, advanced 14 percent.

Saunders also overhauled Visa’s fee structure on debit cards after new U.S. caps took effect in October. The limits on debit-card fees and processing, mandated by the Dodd-Frank Act, may have helped MasterCard wrest market share from Visa, which handled about triple the amount of such purchases than its smaller rival in the fiscal year ended Sept. 30.

“There will be a permanent deterioration in our debit card volume,” Saunders said on the company’s conference call. “There is absolutely no question about it,” he said. “I don’t expect to be close to where we were when the whole thing started.”

Debit Decline

Visa U.S. debit-card spending dropped 9.4 percent in the quarter to $266 billion, while credit climbed 9.8 percent to $246 billion.

The U.S. Justice Department’s antitrust division issued a civil investigative demand on March 13 asking Visa for information about the new debit-card pricing strategy, Saunders said in May. Saunders said yesterday that he is “comfortable” the company’s actions were appropriate.

Saunders has said he intends to generate more than half of Visa’s revenue from outside the U.S. by 2015, up from 44 percent in fiscal 2011.

Visa’s share of worldwide purchase transactions on credit and debit cards, including those processed by Visa Europe Ltd., fell 1.1 percentage points last year to 64.67 percent as MasterCard’s share grew by almost 0.5 percentage point to 25.57 percent, according to the Nilson Report, an industry newsletter based in Carpinteria, California.


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