(Updates with management's comments during a conference call and share price.)
By Aparajita Saha-Bubna
Of DOW JONES NEWSWIRES
MasterCard Inc. (MA) recorded a third-quarter profit as the company processed more transactions, continued to cut expenses and benefited from a slowdown in the pace of decline in consumer spending.
The results, combined with those of bigger rival Visa Inc. (V) last month, could suggest a bottoming out of the economic downturn as consumers, who had scaled back in the recession, begin to stabilize their spending.
"I think the worst is behind us," said MasterCard Chief Executive Robert W. Selander, during a conference call Tuesday morning to discuss the company's third-quarter results. But the economic rebound would likely be less robust than what the company hopes for, he said.
Purchase, N.Y.-based MasterCard repeated a warning that revenue growth in 2009 will fall short of its long-term objective of an average increase in net revenue of 12% to 15% through 2011. The company expects earnings to grow 20% this year, excluding severance charges. For the first three quarters, severance charges totaled about $100 million.
MasterCard's shares recently traded at $214.05, down 3.86% on the day. The shares have gained about 50% so far this year.
For the quarter ended Sept. 30, MasterCard reported earnings of $452.2 million, or $3.45 a share, compared with a year-ago loss of $193.6 million, or $1.48 a share. The year-earlier results included a $515.5 million after-tax charge related to a litigation settlement.
Unlike traditional credit card-issuers, MasterCard and Visa are insulated from credit woes arising from increasing delinquencies because they don't lend to consumers. MasterCard and Visa make money from the fees they charge banks, including JPMorgan Chase & Co. (JPM) and Citigroup (C), to process card payments on the plastic these banks issue. These financial institutions are among the top issuers of MasterCard- and Visa-branded cards.
The more consumers charge on their MasterCard and Visa plastic, the more these two companies earn by way of fees.
For the third-quarter, MasterCard's revenue increased 2% to $1.36 billion fueled by higher fees and number of transactions, which grew 7.6%. to 5.8 billion. The company also cut operating expenses by 13.3%; the bulk of these savings stem from slashing marketing spending.
Analysts surveyed by Thomson Reuters expected earnings of $2.94 on revenue of $1.35 billion.
Purchase volume, or spending on MasterCard debit and credit cards, rose 0.4% in the third-quarter. As of Sept. 30, there were 964 million MasterCard cards, little changed from a year ago.
Last month, Visa reported fiscal fourth-quarter earnings of $514 million. Its profit also stemmed from processing more transactions and cutting expenses. Like MasterCard, it also benefited from a slowdown in the pace of decline in consumer spending.
-By Aparajita Saha-Bubna, Dow Jones Newswires; 617-654-6729; aparajita.saha-bubna@dowjones.com
(John Kell contributed to this article.)