Bloomberg News

Visa Profit Beats Estimates as Credit-Card Use Accelerates

July 27, 2011

(Updates with CEO comment in the fourth paragraph, share advance in the 10th.)

July 27 (Bloomberg) -- Visa Inc., the world’s biggest payments network, said fiscal third-quarter profit rose 40 percent, beating analyst estimates for the 14th straight period, 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 today in a statement. Adjusted earnings per share, which exclude the revaluation of the firm’s Visa Europe Ltd. put option, was $1.26, three 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 derived 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 today during a conference call with analysts and investors.

Visa authorized a new $1 billion share repurchase program after buying back 13.7 million shares in the third quarter at an average price of $77.36 for about $1.1 billion.

Net revenue increased 14 percent to $2.32 billion, beating analysts’ estimates, as operating expenses rose 9.5 percent to $977 million.

Worldwide Spending

Worldwide spending on Visa debit and credit cards, adjusted for currency fluctuations, climbed 13 percent from the same period last year to $941 billion, the company said. Spending by consumers outside their home countries surged 14 percent. Processed transactions rose 11 percent to 13 billion. 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.

Visa 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.

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.

‘Grind Higher’

Visa climbed 34 cents to $88.09 at 5:32 p.m. in extended New York trading. The shares have advanced 25 percent this year.

“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.

Visa’s 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.

The Fed last month limited debit interchange fees to 21 cents per swipe, while letting banks collect an additional 5 basis points of each transaction, or almost 2 cents based on the average debit ticket of $38. The central bank conditionally approved an additional 1-cent adjustment for banks that follow certain fraud-prevention standards.

Transaction Processing

The rule also requires card-issuers to give merchants the choice of using 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 last year, making it the largest payment network, according to the Nilson Report, an industry newsletter. MasterCard was second, with 25 percent, while 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. MasterCard, based in Purchase, New York, is set to report second-quarter results on Aug. 3.

--Editors: Peter Eichenbaum, David Scheer

To contact the reporter on this story: Dakin Campbell in San Francisco at dcampbell27@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net.


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