Visa Profit Tops Estimates as Spending Climbs; Stock Splits

Visa Inc., the world’s largest payments network, posted fiscal first-quarter profit that beat analysts’ estimates as card spending increased. The company announced a 4-for-1 stock split.

Net income for the period ended Dec. 31 rose 12 percent to $1.57 billion, or $2.53 a share, from $1.41 billion, or $2.20, a year earlier, the Foster City, California-based company said Thursday in a statement. The average estimate of 34 analysts surveyed by Bloomberg was for profit of $2.49 a share, adjusted for one-time items.

Chief Executive Officer Charlie Scharf, 49, is boosting payouts to shareholders as more consumers globally shift from cash and checks to electronic payments. Visa last year increased its quarterly dividend by 20 percent to 48 cents a share. Still, the company expects to face challenges this year as lower gas prices damp spending and a strengthening U.S. dollar curbs business overseas.

“While the challenges of the macro global environment don’t seem to abate, our results have remained consistent and reflect the strength and underlying resilience of our business model,” Scharf said in the statement. “Our focus remains squarely on investing in our long-term strategic initiatives, driving new technologies and ways to pay.”

Stock Split

Revenue rose 7.2 percent to $3.38 billion as spending on Visa’s network in regions including the U.S. and Asia increased. A strengthening U.S. dollar, which has curbed business overseas, affected earnings by about 2 percentage points, the company said. Cross-border volume, adjusting for currencies, increased 4 percent, compared with a 9 percent advance in the previous period. Costs tied to client incentives were $713 million, or 17.4 percent of gross revenue, which beat analysts’ estimates of 18.6 percent.

The 4-for-1 stock split will take effect March 19, the company said. The split means Goldman Sachs Group Inc. will replace Visa as the most heavily weighted component of the Dow Jones Industrial Average.

Visa rose 3.7 percent to $257.25 at 5:36 p.m. in extended trading in New York. The shares declined 5.4 percent this year through the close of regular trading, compared with the 2.3 percent drop of the 30-company Dow.

Gas Prices

Visa has seen a drag on spending as consumers haven’t used savings from lower gas prices to buy other items, Scharf said on a conference call. Most of that negative effect is expected in the second quarter and should stabilize in the second half of the year, he said.

“Consumer spending continues at reasonable levels, but it is not accelerating and we expect gas prices to continue to be a near-term headwind,” Scharf said on the call. “We anticipate the savings will accumulate and ultimately we would see more spend in the discretionary categories, including higher-ticket items.”

Gasoline purchases generate about 10 percent of spending on Visa’s network, according to Tom McCrohan, an analyst at Sterne Agee & Leach Inc.

The company reaffirmed that revenue growth, adjusted for currencies, will be in the “low double digits” this fiscal year, helped by planned changes to fees it charges banks for processing transactions.

American Express Co., the nation’s biggest credit-card issuer by purchases, said Jan. 21 that fourth-quarter profit increased 11 percent to $1.45 billion as revenue rose 6.6 percent. MasterCard Inc., the second-largest U.S. payment network, is scheduled to report results on Friday.

Before it's here, it's on the Bloomberg Terminal.