MasterCard Inc. (MA:US), the second-biggest payments network, fell in New York trading after posting quarterly revenue that missed analysts’ estimates as currencies in some overseas markets slid against the U.S. dollar.
MasterCard declined 2.1 percent to close at $427.20 after reporting today that second-quarter revenue increased by 9 percent to $1.82 billion, less than the $1.88 billion estimated by 29 analysts surveyed by Bloomberg. Sales growth is likely to be slower for the rest of the year amid global economic uncertainty, the firm said on a conference call.
MasterCard is among global corporations whose earnings have been hit by currency fluctuations against the dollar. Chief Executive Officer Ajay Banga, 52, is pushing the Purchase, New York-based company into emerging markets and gets about 60 percent of revenue from outside the U.S., more than larger rival Visa Inc. (V:US)’s 45 percent.
“We’re really well positioned to navigate through the economic challenges by really focusing on what we can influence and control,” Chief Financial Officer Martina Hund-Mejean said in a phone interview. “We can’t control currency swings.”
Adjusted net income excluding some legal costs rose 17 percent to $713 million, or $5.65 a share, from $608 million, or $4.76, a year earlier, the firm said in a statement. That beat by seven cents the average estimate (MA:US) of 33 analysts surveyed by Bloomberg. Net income including a $13 million legal cost was $5.55 a share.
The firm’s revenue was hit by a decline in the euro and the Brazilian real, Hund-Mejean said. MasterCard processes about one-third of its transactions in Europe, which is struggling with recession and a sovereign-debt crisis. The euro slid 5.3 percent against the dollar during the quarter, while the real declined 10 percent.
“The rule of thumb for MasterCard is a one-penny move in the dollar to euro exchange rate has an annualized impact to their revenue of about $11 million to $13 million,” Jason Kupferberg, an analyst with Jefferies Group Inc. (JEF:US) in New York, said in an interview. “That’s the issue that they’re facing.”
The company continued to benefit from the consumer shift to electronic payments from cash and checks. Worldwide spending on MasterCard- and Maestro-branded cards climbed 13 percent to $661 million, based on local currencies, compared with a year earlier, the company said in the statement. Processed transactions rose 29 percent to 8.5 billion.
Maintaining that growth for the rest of 2012 will be difficult given the “global economic uncertainty,” Hund-Mejean said. “Before considering the impacts of currency, we expect net net revenue growth in the second half of the year to be somewhat lower,” she said on the conference call.
MasterCard increased rebates and incentives, which encourage banks to use its products, by 24 percent to $661 million from a year earlier. This exceeded the estimates of analysts including Barclays Plc’s Darrin Peller and Tien-tsin Huang of JPMorgan Chase & Co., who predicted a 15 percent gain.
“We would expect this morning’s miss to drive weakness in shares of MA in trading today, as investors likely have new questions/concerns around an elevated level of rebates and incentives going forward,” Peller wrote in a note to clients today, referring to MasterCard’s stock ticker.
Total operating expenses, including legal costs, rose 8 percent to $846 million for the quarter, the firm said. MasterCard and Visa and some of the biggest U.S. banks agreed last month to settle a price-fixing case brought by retailers, who accused the firms of rigging credit-card fees.
MasterCard said the settlement will cost it $790 million. Visa, the world’s biggest payments network, said its share of the settlement was about $4.4 billion. MasterCard took a $13 million after-tax charge in the second quarter after recording a $770 million expense in its fourth quarter.
MasterCard’s share of worldwide purchase transactions on both credit and debit cards expanded by almost half of a percentage point last year to 25.57 percent, while Visa’s share, including those purchases processed by Visa Europe Ltd., fell 1.1 percentage points to 64.67 percent, according to the Nilson Report, an industry newsletter based in Carpinteria, California.
MasterCard has climbed (MA:US) 15 percent this year, compared with a 13 percent gain for the 71-company Standard & Poor’s 500 Information Technology Index. (S5INFT)
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