Visa beats expectations but debit law looms

The company's shares edged higher in after-market trading following the results and then edged lower. Visa's Chief Financial Officer said he believes the economy is recovering and thinks the chance of another recession is low, but added the recovery may be protracted.

The San Francisco-based company said its revenues increased 23 percent from a year earlier, to $2.0 billion, as consumers increased their willingness to travel and started spending more on their credit and debit cards after a severe recession.

But on a conference call with investors, attention focused on a new law expected to limit debit processing fees, known as the Dodd Frank law.

The law will reshape the U.S. debit landscape, Chief Executive Joseph Saunders told analysts on a conference call on Wednesday.

Visa dominates the U.S. debit processing market and is more exposed than its rival MasterCard Inc to a cutback in debit processing fees. Concerns about the impact of the law have weighed on Visa's shares for weeks.

Saunders would not quantify the law's impact on Visa's future revenues, despite repeated analyst questions during the call. The Federal Reserve still has to determine exactly how fees will be imposed and any rules will not be implemented for some time, he said.

The law was signed last week.

Our business should not begin to feel the effects of the legislation until this time next year, Saunders said. I expect the impact will be modest and contained to our fourth fiscal quarter of 2011.

Those comments did not completely reassure investors and analysts, who are also concerned the law could open the door to more damaging regulation of credit card processing fees. Merchants have long protested the fees, which they pay to banks and networks every time a consumer pays for an item with a credit or debit card.

Earning strong profits in the coming quarters may not help credit card processors.

It could be fuel to the fire for lawmakers and critics, said Michael Nix, a portfolio manager at Greenwood Capital Associates, which owns Visa shares.

By continuing to beat market expectations despite a shaky economic recovery, Visa may give lawmakers cause to say these guys shouldn't be making so much money on the back of consumers and merchants. That's basically what they're saying already, Nix said.

CAUTIOUS OPTIMISM

Visa offered some positive signs for the economy, although executives expected to see more bumps in the recovery from a severe global recession.

Overall, our view is that we are in recovery. What we're seeing on balance suggests ... (a) lower probability of a double dip than what we might have suspected a quarter ago, Chief Financial Officer Byron Pollitt said. But we also believe that the recovery is going to be protracted.

Payment volume growth on Visa credit and debit cards rose 13 percent to $745 billion in the quarter ended in March from a year earlier, boosting revenue in the latest quarter. Cross border volume growth was 17 percent for the quarter ended in June, indicating that more consumers are spending money on traveling to different countries.

The underlying volume trends are improving ... That's a good indicator of the health of the global consumer, said Mayank Tandon, an analyst at boutique investment bank Signal Hill.

Visa reported net income of $729 million, or 97 cents per share, for the third quarter ended June 30.

That was down slightly from Visa's year-earlier net income of $729 million, or 97 cents per share, which included proceeds from the sale of the company's stake in VisaNet do Brasil. Excluding the impact of that sale, Visa earned 67 cents per share a year earlier.

Analysts on average had expected Visa to report earnings of 93 cents per share, according to Thomson Reuters I/B/E/S.

Visa shares closed down 1.87 percent on Wednesday, at $75.18.

(Reporting by Maria Aspan; editing by Andre Grenon)