MasterCard CEO Warns Of 'Dodgy' Q2; Visa Tops Views But Volume Gains Cool

Investor's Business Daily

MasterCard (MA) fell Wednesday on weak revenue and a "dodgy" outlook, but larger rival Visa rallied late after its March-ending quarterly results beat forecasts.

Visa's (V) fiscal Q2 earnings leapt 20% to $1.92 a share, 11 cents over analyst views. Revenue rose 15% over last year to $3 billion, above analysts' $2.8 billion estimate.

MasterCard's Q1 revenue rose 8% to $1.91 billion, just missing analyst views of $1.93 billion.

But better-than-expected operating margins and stock buybacks helped earnings top views by 5 cents, rising 16% to $6.23 a share.

MasterCard fell 2% in the stock market Wednesday after hitting a record high Tuesday. Visa rose 2% late after losing more than 1% ahead of results.

U.S. Transactions Weak

Purchase volume growth on both card networks slowed vs. a year ago. With the exception of Visa's South and Central America region, where volume fell 4.4%, the U.S. had the weakest growth.

Visa's overall card volume rose 6.2%. The U.S. grew 3.4% — vs. 6.6% in the year-earlier quarter.

MasterCard's U.S. gross dollar volume rose 3.7% vs. 14% a year ago. Volume outside the U.S. jumped 15.2%.

MasterCard, the No. 2 card network, derives 60% of its business overseas, more than Visa, which has a bigger U.S. share.

"MasterCard's deceleration is a very broad indication that global consumer spending is slowing down," said Wedbush Securities analyst Gil Luria.

U.S. spending "cooled" in February as consumers adjusted to higher payroll taxes and some inflation in gas and food prices, MasterCard CEO Ajay Banga said in a morning conference call.

He cited slower retail sales vs. a year earlier, which benefited from springlike weather.

"The strengthening U.S. housing market could be a good signal that the economy is turning, and the second half of 2013 will be the test of that," Banga said.

But Q2 right now "looks a little dodgy," he added.

MasterCard's U.S. credit volume grew just 1.5% vs. 7.2% a year earlier. Debit growth slowed to 5.7% from 20.7% in Q1 2012.

MasterCard's credit-card business has been under pressure as its top card issuer, Citigroup (C), continued to report weak volume growth. On the debit side, market-share gains from leader Visa in the wake of new financial regulations have waned.

Visa's U.S. debit volume was essentially flat in the last quarter. Its U.S. credit volume rose more than 9%, likely buoyed by better performance from its largest card issuers such as JPMorgan Chase (JPM) and Bank of America (BAC).

Overseas Growth Mixed

Banga said consumer spending in Asia is picking up, but economic growth in China is "mixed.

Europe's economic picture remains mixed, he says, with continued uncertainty expected in the near future.

Visa Europe is a separate operating entity.

Cross-border volume grew 16% at MasterCard and 10% at Visa.

Stock buybacks boosted earnings per share in the latest quarter for Visa and MasterCard.

MasterCard predicts 11% to 14% compounded annual revenue growth and at least 20% EPS growth from 2013 to 2015, but the company expects to underperform early on.

Visa still sees revenue growth in the low-double digits.

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