Visa Profit Beats Estimates as Credit-Card Spending Increases

Visa Inc., the world’s biggest payments network, said fiscal third-quarter profit rose 40 percent, beating analyst estimates, as consumers boosted credit-card spending.

Net income for the three months ended June 30 climbed to $1 billion, or $1.43 a share, from $716 million, or 97 cents, in the same period a year earlier, the San Francisco-based company said yesterday in a statement. Adjusted earnings per share, which exclude the revaluation of the firm’s Visa Europe Ltd. put option, were $1.26, or 3 cents better than the average estimate of 30 analysts surveyed by Bloomberg.

Chairman and Chief Executive Officer Joseph W. Saunders is looking to expand abroad as new U.S. limits on debit-card swipe fees charged to merchants threaten to crimp revenue growth at home. Visa, which got about 59 percent of sales from the U.S. last fiscal year, aims to generate more than half its revenue in international markets by fiscal 2015, Saunders has said.

“While the regulatory process generated headlines over the past 13 months, the overwhelming majority of Visa’s revenues are derived from products and geographies that are completely untouched by these events,” Saunders, 65, said during a conference call with analysts and investors.

Visa authorized a new $1 billion share repurchase program after spending about $1.1 billion in the third quarter to buy back 13.7 million shares at an average price of $77.36. Revenue increased 14 percent to $2.32 billion, beating analysts’ estimates, as operating expenses rose 9.5 percent to $977 million, the company said.

Credit, Debit

Worldwide spending on Visa credit and debit cards, adjusted for currency fluctuations, climbed 13 percent from the same period last year to $941 billion, the company said. Cross-border volume, a measure of spending by consumers outside their home countries, surged 14 percent.

Processed transactions worldwide rose 11 percent to 13 billion as consumers continue to shift from cash and checks to electronic payments.

U.S. credit-card purchases climbed 9.8 percent to $224 billion, compared with a 5.9 percent rise in the same period last year. Spending on debit cards in the U.S. advanced 11 percent to $295 billion, slower than the 21 percent expansion Visa reported for the fiscal third quarter of 2010.

The company said in a July 6 regulatory filing that it expects revenue growth for fiscal 2012 in the “high single-digit to low double-digits range” -- down from a 2011 projection of 11 percent to 15 percent -- after the Federal Reserve capped debit fees at about half of the current rate.

‘Financial Impact’

Visa will bear “the majority of the financial impact” of the new regulations in fiscal 2012, Saunders said.

Visa and No. 2 network MasterCard Inc., based in Purchase, New York, set swipe fees and pass the money to card issuers including Bank of America Corp., Wells Fargo & Co. and JPMorgan Chase & Co.

Visa has advanced 25 percent this year, closing at $87.75 yesterday on the New York Stock Exchange. MasterCard, which is set to report second-quarter results on Aug. 3, has climbed 35 percent in 2011.

“Shares can continue to grind higher in the coming months as investors get more comfortable with the post-regulatory competitive environment,” JPMorgan analysts led by Tien-tsin Huang wrote in a July 25 research note. Huang has an “overweight” rating on Visa.

Net income was buoyed by a non-cash, non-operating gain of $122 million related to the revaluation of the Visa Europe put option, according to an investor presentation. Excluding that, the company reported adjusted profit of $883 million.

New Formula

The Fed last month 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.

Visa handled 66 percent of 120.4 billion purchase transactions worldwide in 2010, making it the largest payments network, according to the Nilson Report, an industry newsletter. MasterCard was second, with 25 percent, and Shanghai-based China UnionPay Co. was third, with 4 percent.

American Express Co., which handled 3.9 percent of worldwide purchase transactions and is also the biggest credit-card issuer by purchases, reported a record $1.3 billion second-quarter profit on July 20.