MasterCard Net Rises to Record as Card Use Increases

May 2 (Bloomberg) -- MasterCard Inc., the credit-card company whose shares have more than tripled since last year's initial public offering, said first-quarter profit surged 70 percent to a record as consumers charged more purchases.
Net income rose to $214.9 million, or $1.57 a share, from $126.7 million, or 94 cents, a year earlier, the Purchase, New York-based company said in a statement. Profit at MasterCard, the No. 2 card network behind Visa International Inc., beat the $1.16 average estimate of 12 analysts surveyed by Bloomberg.
Transactions jumped 19 percent as consumers continued to switch to cash and checks from credit and debit cards. MasterCard's revenue increased 24 percent, benefiting from a March increase in U.S. retail sales that was the biggest in three months. Visa plans an IPO early next year to capitalize on consumers' growing preference for credit over cash.
``This was a very strong quarter,'' analyst Craig Maurer at Calyon Securities, the investment-banking arm of Credit Agricole SA, said in an interview. ``They had great revenue, great transaction growth, great expense control.''
Revenue rose to $915.1 million, while expenses climbed 8.2 percent to $601.2 million on costs to hire more workers and defend against lawsuits.
Shares of the company advanced to $125.06 in early trading, from $114.85 at the close yesterday on the New York Stock Exchange. They were priced at $39 in the May 2006 IPO.
`Bullish' on Prospects
MasterCard credit- and debit-card spending increased 16 percent to $509 billion on a local-currency basis, and transactions jumped to 4.2 billion, the company said.
Consumers' use of cash and checks fell to 50 percent of all payments in 2005 from 77 percent in 1995, while card use rose to 40 percent from around 21 percent, analyst Timothy Willi of A.G. Edwards & Sons Inc. wrote in a note to clients this week, citing data from the Nilson Report in Oxnard, California.
Nilson estimates that by 2010, card-based payments will account for about 56 percent of consumer payments, while cash and checks will drop to 29 percent.
``We are bullish on the long-term prospects for MasterCard,'' Willi wrote. ``Consumers, businesses and government are making cards their preferred method of payment.''
MasterCard's advertising and market-development expenses dropped to $178.5 million from $182.7 million a year earlier. Maurer at Calyon said American Express Co., which reported a 21 percent profit increase on April 19, has also cut back on marketing.
``The card companies see limited opportunities to drive any incremental business in the current market,'' Maurer said.
Profit Margin
Shares of MasterCard slid 9.7 percent on Feb. 9, the biggest drop since the IPO, after Chief Executive Officer Robert Selander declined on a conference call with analysts to forecast continued growth in profit margins.
A lawsuit accusing MasterCard of anticompetitive behavior, brought by rival card networks American Express and Discover Financial Services, ``could put downward pressure on shares,'' as could Visa's public stock offering, according to analysts at JPMorgan Chase & Co.
The lawsuit is scheduled for trial in federal court next year.
MasterCard in April 2006 began charging card issuers for all foreign transactions using U.S.-issued cards. It used to assess a fee only if it converted the related currency to U.S. dollars.