MasterCard stock slumps after revenue warning

The world's second-largest credit card network said lower expenses and increased fees helped first-quarter results.

Net income fell 18 percent to $367 million, or $2.80 per share, from $447 million, or $3.37 per share, a year earlier. But the results beat Wall Street expectations.

Analysts, on average, forecast earnings of $2.62 per share, according to Reuters Estimates.

The company's bigger rival, Visa Inc , beat Wall Street earnings expectations earlier this week, helped by higher fees, lower expenses and increased use of its debit cards by consumers.

People were generally encouraged with Visa (and) that added some momentum to MasterCard, said Ken Crawford, senior portfolio manager at Argent Capital Management.

MasterCard shares climbed to a seven-month high on Thursday, a day after Visa released its earnings.

MasterCard is partially insulated from the credit crisis because it processes transactions rather than lends funds. But the company has seen a slowdown in the growth of revenue and transaction volumes as battered consumers used their credit cards less.

Visa has more debit (business), and most people think that debit is less discretionary and is a more stable method for payment, while credit is for things you may or may not buy, Crawford said.

Unlike Visa, MasterCard relies more on credit than on debit cards, which is a tough business when consumers are scaling back debt and banks shrink lending.

MasterCard's first-quarter U.S. credit volume fell 17.2 percent, compared to an 11.4 percent decline last quarter, while U.S. debit volume grew 5.6 percent, in line with the levels of the previous quarter.

Credit and charge programs accounted for 67 percent of the gross dollar volume of MasterCard, while the remaining 33 percent was related to debit cards.

In addition, mounting pressure from Washington for credit card companies to slash fees and interest rates could takes its toll on card networks, as it could slow growth in an industry that developed rapidly before the financial crisis.

MasterCard shares were down 7.8 percent at $169.15 in afternoon trading on the New York Stock Exchange. The shares are up 25 percent this year.

REVENUE UNDER PRESSURE

Net revenue fell 2.2 percent to $1.2 billion, as the strong dollar impacted revenue generated overseas.

Selander said U.S. dollar appreciation -- especially against the euro and the Brazilian real -- cut revenue growth by 4 percentage points in the first quarter, and estimated a similar impact in the rest of 2009.

MasterCard said net revenue growth this year will fall short of its long-term goal of 12 percent to 15 percent.

Operating expenses decreased 10.8 percent as MasterCard trimmed advertising and marketing spending by 35 percent, tightened travel expenses 64 percent and slashed consulting fees. The company also cut 130 jobs, or 2 percent of its workforce.

MasterCard forecast 2009 operating expenses would be flat to slightly lower compared with last year, including the impact of all severance charges.

Chief Executive Robert Selander said the U.S. economy faces a very challenging second quarter, with deeper deterioration of the housing market and higher unemployment.

If you think about housing, it looks like the housing situation is still, at least in the U.S., deteriorating ... unemployment is continuing to rise and most economies are forecasting that will continue into the first quarter of next year, Selander said in an interview with Reuters.

The economy may start to stabilize in the second half, helped by the Obama administration's stimulus plans, but real improvement will not be seen until next year, Selander said.

I'm more optimistic about later in the year, and 2010, than I am in the second quarter, he added.

The firm's first-quarter gross dollar volume inched up 0.3 percent to $550 billion on a local currency basis, but the growth was much slower than in recent quarters, hurt by the lower use of credit cards in the United States and a slowdown in Europe, Canada, Asia and Latin America.

Still, following the better-than-expected earnings, Credit Suisse and Standard & Poor's raised their price targets for MasterCard to $185, from $175 and $165, respectively.

(Reporting by Juan Lagorio; Editing by John Wallace, Phil Berlowitz)