Visa posts 24 pct jump in 2Q profit, tops views

Associated Press
In this photo taken Tuesday, May 3, 2011, a Visa card is displayed with a wallet in Richardson, Texas. Visa Inc., reports quarterly financial earnings Thursday, May 5, after the market close. (AP Photo/LM Otero)
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Visa Inc.'s fiscal second-quarter profit leaped 24 percent, as consumers used their credit and debit cards more often in the U.S. and abroad.

In fact, 60 percent of revenue growth for the quarter came from outside the U.S., Visa Chairman and CEO Joseph Saunders said Thursday after the San Francisco-based payment processing company released its results. That growth came despite significant declines in travel to Japan because of the March 11 earthquake and tsunami, and to the Middle East and North Africa because of the political uprisings across several countries.

International growth reflects the success of an important strategy for Visa, which is aiming to increase use of the cards that bear its logos across the globe. Visa said non-U.S. revenue reached 45 percent of its total for the quarter.

Its smaller rival, MasterCard Inc., which on Tuesday reported its first-quarter profit also rose 24 percent, already earns more than half of its revenue abroad.

One reason behind the international push is increasing regulation in the U.S. Saunders, speaking in the conference call to discuss results, expressed optimism about the potential delay of a rule mandated in last year's federal financial services overhaul that would restrict the fees merchants pay to get debit transactions processed.

A number of legislators are expressing concern about the "unintended consequences" of the debit fee restrictions on the banks that issue credit and debit cards, Saunders said.

Visa, along with banks, argues that cutting the fees would deliver a windfall to merchants, and that the savings would not be passed on to consumers, as advocates of the rule maintain.

Payments processors earn money by operating the network through which electronic payments are made, and are paid by the banks that issue cards. Visa and MasterCard do not issue credit or debit cards or lend money to card users.

While the debit fee restrictions would not directly affect the payments that banks make to Visa and MasterCard for processing payments, it's widely expected that if it takes effect, banks will turn to the payment processors for relief.

In the three months ended March 31, Visa reported net income of $881 million, or $1.23 per share. That compared with earnings of $713 million, or 96 cents per share, for the year-earlier period.

Revenue rose 15 percent to $2.25 billion, from $1.96 billion a year ago.

The results exceeded Wall Street expectations. Analysts, on average, had forecast profit of $1.20 per share, on $2.23 billion in revenue, according to data provided by FactSet.

Analyst Thomas McCrohan of Janney Capital Markets said the results contained few surprises. Revenue was a little lighter than he expected, but not light enough to draw concern.

Overall, it is clear that consumers are returning to using their cards, he said.

Payments volume growth was 15 percent in the quarter ended Dec. 31. Visa recognizes its largest revenue line, service revenue, based on the prior quarter's payments volume. The $1.09 billion in service revenue therefore reflected holiday spending, which was stronger than expected.

All other revenue lines are recognized in the same quarter, including international transactions. For the three months ended March 31, payments volume growth was 13 percent. Cross border volume growth was also 13 percent

Visa processed more than 12 billion transactions in the quarter, up 13 percent from last year.

The company reaffirmed its outlook for annual net revenue growth between 11 and 15 percent, implying guidance ranging between $8.95 billion and $9.11 billion. Wall Street expects $9.13 billion in revenue, with estimates ranging from $8.89 billion to $9.42 billion.

Should the debit fee restrictions take effect, one strategy is for banks to push more affluent customers to use credit cards more, and poorer customers to switch from debit to prepaid cards. The fee restrictions as they are currently written would not impact credit or prepaid cards.

Any switch in card use or issuance would also impact how much Visa and MasterCard get paid.

To that end, Visa included an asterisk in its guidance for the rest of the year in the line that reflects the discounts and incentives given to banks, and a footnote that said the guidance "may change based on future developments regarding pending federal debit regulations."

Visa also said its board authorized a new $1 billion share repurchase program. Its prior program had a remaining authorization of $64 million. During the quarter ended March 31, Visa repurchased about 8.7 million shares, at an average price of $72.58 per share, for a total cost of $630.

Despite the better-than-expected results, Visa shares slipped in after-hours trading. The stock gave up $1.10 to $77.60, after closing the regular session down $1.07 at $78.70.

The company's results typically exceed expectations, and traders may have been looking for a wider gap than Visa delivered.

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