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MasterCard Earnings Robust, But Consumer Confidence Soft

MasterCard (MA) reported better-than-expected third-quarter earnings Thursday and slightly raised guidance.

But the card processing giant also noted weaker consumer confidence and spending trends.

MasterCard's Q3 earnings per share rose 18% to $7.27. Revenue climbed 16% — the second straight quarter of accelerating growth — to $2.22 billion.

Analysts had expected EPS of $6.95 on $2.13 billion in revenue.

MasterCard shares rose early, but closed down 1%, in part due to weak results late Wednesday from Visa (V), its larger rival.

Visa's fiscal Q4 earnings just met estimates for a 20% gain. Revenue rose 9% to $2.97 billion, but that missed forecasts. Visa shares fell 3.5% Thursday.

MasterCard's dollar transaction volume rose 15% to above $1 trillion, and the number of cross-border transactions climbed 19%. Card transactions topped 10 billion.

"We had another good quarter with growth across all geographies," CEO Ajay Banga said in a statement.

The transactions surge was partly offset by higher costs associated with higher rebates and customer incentives.

MasterCard's forecast for the rest of 2013 is "slightly improved" vs. its September outlook, said CFO Martina Hund-Mejean.

The company reiterated its target for at least 20% EPS compound annual growth from 2013 to 2015.

"It was a very strong quarter," Sterne Agee analyst Greg Smith told IBD. "We were surprised by the high expenses, but also surprised by the strong revenue growth.

Smith raised his full-year earnings forecast for MasterCard to $26.92 a share from $26.49, and lifted his 2014 and '15 EPS targets.

But Banga said on the conference call that there's been a worrying "slow, steady decline" in consumer confidence over the last three to four months. He said that's likely behind the slight cooling in the MasterCard Spending Pulse. He added that Washington's budget crisis further eroded sentiment in October.

Sterne Agee's Smith discounted the drop in confidence, saying everyone is trying to figure out if slower growth is a new trend or a bump in the road. "I see a market where interest rates are low and housing is holding up relatively well," he said. "I'm not worried."