MasterCard posts 33 percent profit increase

U.S. shoppers kept on using their MasterCards in July even as uncertainty about the economy increased.

Spending with credit and debit cards bearing the company's logo rose about 12 percent in the U.S. compared with July 2010, Chief Financial Officer Martina Hund-Mejean of Mastercard Inc. said Wednesday.

About 2 points of that increase came from gas prices, which averaged about $1 per gallon higher than a year ago. Inflation also played a part in higher clothing and food costs, and more expensive luxury items due to record prices for gold and silver, she said.

Other increases came from expanding fees and surcharges that airlines charge, and increased spending in restaurants and hotels, the CFO said during an interview.

Spending was slowing down at this time a year ago.

Still, there is an apparent split in the consumer base.

"We have two types of consumers in the United States," Hund-Mejean said during a conference call to discuss the company's second-quarter results. Those people who have a job and expect to keep it "feel that they can go out and do the spending that they need to do," she said. "Then, on the other hand, you have the consumer who is not quite as well off, who is not able to do it like that."

The July data follows a strong quarter for MasterCard in which its profit rose 33 percent as card holders kept reaching for their plastic during the spring months.

The results beat Wall Street expectations, and its shares rose $39.98, or 13.4 percent, to close at $338.47, after earlier touching a 52-week high of $340.42.

The payment processing company said net income rose to $608 million, or $4.76 per share, for the three months ended June 30, up from $458 million, or $3.49 per share, in the year-ago quarter. The number of outstanding shares fell by more than 2 percent, which had the effect of increasing earnings per share.

Revenue rose 22 percent to $1.67 billion from $1.37 billion a year ago. Acquisitions contributed about 3 percentage points to revenue growth.

Analysts, on average, were expecting earnings of $4.22 per share on revenue of $1.55 billion, according to data provided by FactSet.

MasterCard said the number of transactions it handled rose 17 percent during the quarter. On a dollar basis, total transactions reached $811 billion, versus $656 billion last year

Both credit and debit card use rose around the world.

In the U.S., credit card use rose 5.3 percent, while debit card use jumped 15 percent. That was helped by the additions of SunTrust Bank and Sovereign Bank as MasterCard issuers, which put more cards in the hands of consumers after the company lost some banks last year. All told, there were 3 million new credit card account holders, bringing the total in the U.S. to 146 million, and 11 million new debit card customers, bringing the total to 115 million.

Worldwide, credit card use rose 17 percent, while debit use surged 29 percent, with the highest growth coming from the Asia-Pacific-Middle East region, and Europe. International credit card accounts rose by 14 million to 459 million, while debit accounts rose by 38 million to 181 million.

About 60 percent of MasterCard's revenue comes from outside the U.S., so international growth is important to the Purchase N.Y.-based company's results.

"It's a very, very strong performance," said Stifel Nicolaus analyst Chris Brendler. "International is clearly growing much faster than expected."

The international growth numbers did show a benefit from currency rates, he said, but even if that is taken out, growth overseas was very strong. "They absolutely crushed, the numbers look fantastic," he said.

Operating expenses jumped 21 percent, with about 7 percent of that increase due to costs related to acquisitions. The company is also spending on new technologies like mobile payments, including contactless payments and the Google Wallet.

During the call, the company offered broad guidelines on its strategy for dealing with new federal regulations on the fees charged to retailers for processing debit transactions and on giving merchants choice of which network handles those transactions.

But unlike rival Visa Inc., MasterCard did not reveal specifics on changing prices or how it plans to lure more retailers to use its network.

"There's still a lot of moving pieces that need to play out," said Chris McWilton, the company's U.S. regional president. He noted that MasterCard's smaller share of the U.S. debit market puts it in a different competitive situation than Visa, which has a much larger debit card business. "We will be looking at strategic, surgical opportunities," McWilton said, later adding, "A deal-specific approach is needed to give us the flexibility to navigate all the complexities."