Visa 3rd-qtr profit leaps 40 with greater card use

By EILEEN AJ CONNELLY | July 27, 2011 | 5:13 PM EDT

In this Dec. 29, 2010 photo, digital currency transactions from around the globe are monitored at Visa's network operations center in Ashburn, Va. Visa Inc., reports quarterly financial results Wednesday, July 27, 2011, after the market close.(AP Photo/J. Scott Applewhite)

NEW YORK (AP) — Visa Inc. on Wednesday said its fiscal third-quarter profit shot up more than 40 percent, as people used their Visa credit and debit cards more often.

The San Francisco-based payments processor said net income jumped to $1 billion, or $1.43 per share.

Adjusted for accounting related to its European holdings, Visa's net income for the quarter was $883 million, or $1.26 per share.

That topped the $1.23 per share expected, on average, by Wall Street analysts, according to FactSet.

Revenue rose 14 percent to $2.32 billion, from $2.03 billion a year earlier, also topping analysts' average forecast, which was for $2.3 billion.

Visa said its strong results reflected growth in how often people used their cards and how much they spent and in the number of cross-border transactions.

International growth was key to the results, with total volume leaping nearly 25 percent for credit purchases outside the U.S. and 27 percent for debit purchases. Visa has said it aims to boost revenue overseas, in part to offset profit lost to increasing regulation in the U.S.

Among those regulations is the debit card fee cap announced last month by the Federal Reserve. The Fed capped the fees banks collect from merchants for processing debit purchases at an average of 24 cents, down from the current average of 44 cents starting Oct. 1.

That means Visa will feel the brunt of that cap in its next fiscal year, which begins the same day.

Visa, which holds a significant lead in debit card market share, has estimated the rule will hurt a stream that currently accounts for about 20 percent of the company's revenue. For next year, it accordingly forecasts slower growth in revenue and earnings per share.

For 2012, Visa projects high single- to low double-digit percentage growth in revenue and mid-to high-teens percentage growth in earnings per share.

"That's pretty attractive, given that 20 percent of their revenues were cut in half," said Edward Jones analyst Shannon Stemm.

Analysts, on average, were expecting 11 percent revenue growth and 16 percent earnings growth for 2012.

Stemm said customers are likely to see less emphasis on debit cards from banks, but that will probably come in reduced marketing efforts and cuts in debit rewards — not the derailment of growth in the debit business.

U.S. debit card use rose 11 percent during the quarter, and remained well ahead of credit card use. But credit use also rose, up 10 percent, in contrast with a big drop during the height of the recession.

During the quarter, the company repurchased about 13.7 million class A common shares, at an average price of $77.36 per share, for a total cost of $1.1 billion. Visa said its board has approved a new $1 billion buyback program through July 20, 2012.

Visa reiterated its forecast for the rest of its current fiscal year, which ends Sept. 30. It continues to expect revenue to rise between 11 and 15 percent, or between $8.95 billion and $9.11 billion. It expects earnings-per-share growth of at least 20 percent, or least $4.84 per share.

Wall Street expects revenue of $9.15 billion, with estimates ranging from $9 billion to $9.3 billion. Analysts project earnings of $4.92 per share for the year, with estimates ranging from $4.78 to $5.02.

In afterhours trading, Visa stock was flat with its close in Wednesday's regular session, at $87.75.