MasterCard 1Q profit falls 18 pct, beats estimates

NEW YORK — Credit card and global payments processor MasterCard Inc. said Friday its first-quarter profit fell 18 percent from the year-ago period that included a special gain on the sale of an investment. Its earnings still topped analysts’ expectations.

Despite the better-than-expected results, shares of MasterCard fell sharply as the company said income growth during the year will fall below its long-term outlook of 20 percent to 30 percent because of the struggling global economy.

Shares of MasterCard tumbled $10.55, or 5.8 percent, to $172.90.

“Investors were hoping to hear that MasterCard is starting to see improvement in April, but that wasn’t the case,” said Andy Miedler, a senior technology analyst for Edward Jones. Miedler added that some of the sell-off could reflect profit taking. Shares had gained 6 percent during the week before Friday’s decline.

In an interview with The Associated Press, MasterCard’s chief financial officer, Martina Hund-Mejean said early data from April continues to show some volume weakness in the U.S.

“When you look at what’s happening in April, we’re not yet seeing a stabilization,” Hund-Mejean said. “The data is mixed.”

Hund-Mejean noted that there has been some stabilization and even strength in overseas volume recently.

Net income for the quarter ended March 31 fell to $367.3 million, or $2.80 per share. Purchase, N.Y.-based MasterCard earned $446.9 million, or $3.37 per share, during the same quarter last year.

Analysts polled by Thomson Reuters, on average, forecast earnings of $2.61 per share for the quarter on revenue of $1.21 billion.

Last year’s results included a $173 million gain from the sale of a portion of MasterCard’s investment in Redecard SA, a Brazilian credit and debit card provider.

Net revenue fell 2 percent in the latest quarter to $1.16 billion from $1.18 billion a year ago. The dip was primarily due to foreign currency translation. On a constant currency basis, MasterCard’s revenue increased 2 percent from the year-ago period.

MasterCard has said it would need high single-digit revenue growth coupled with flat expenses to hit its long-range profit growth target.

Despite a weakening global economy, MasterCard still saw growth in the number of processed transactions — up 6 percent to 5.1 billion.

The dollar value of those transactions fell 10 percent to $411 billion, however, primarily due to foreign currency exchange. On a local currency basis, purchase volume increased less than 1 percent.

“Our volumes have been impacted by significant head winds, such as slower cross-border travel, lower gas prices, and an appreciating dollar,” Robert Selander, MasterCard’s president and chief executive said during a conference call. “We don’t believe there’s any reason to assume the economic slowdown across the world will improve for the balance of this year.”

In the U.S., purchase volume fell 7 percent to $192 billion, primarily because of declining spending on gas as prices fell.

To counter the revenue slowdown, MasterCard is cutting costs, like many other companies around the world. The company reduced costs in the first quarter, which helped improve its operating margin. The company’s operating margin improved 5 percentage points to 48.6 percent during the first quarter.

“The key is flexibility,” Hund-Mejean said. “Any good company, really always looks at the expense line to buffer what’s happening on the top line.”

Total operating expenses fell 11 percent to $595 million. Costs were trimmed through initiatives to reduce travel expenses, professional fees and personnel costs. MasterCard, however spent $19 million on severance costs during the quarter.

MasterCard also slashed advertising and marketing spending by more than 35 percent to rein in expenses during the quarter.

Edward Jones’ Miedler said MasterCard is handling it expenses very well to help maintain profitability during the slowdown, and is well-positioned for long-term growth as the economy recovers.