(Updates throughout with additional detail 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.
"We are very pleased with our third-quarter financial results, specifically since we began to see signs of stabilization in parts of our business," said MasterCard Chief Executive Robert W. Selander, in a statement.
MasterCard's shares traded at $224.45 in premarket activity, after closing at $222.65, as results topped expectations.
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.)