Are you sure?

Visa quarterly earnings beat estimates as costs fall

Visa Inc reported better-than-expected quarterly earnings, as the world's largest credit card network cut expenses and credit-strapped consumers used their debit cards more.

The company also forecast revenue would grow more than expected in the fourth quarter helped by a recovery in the number of transactions.

Net income rose 73% to $729 million, or 97 cents per diluted class A share, for the third quarter ended June 30.

On an adjusted basis, reflecting a normalized tax rate, restructuring and purchase amortizations, quarterly net income rose to $744 million, or 98 cents per diluted class A share.

Excluding the impact from the sale of the company's stake in VisaNet do Brasil, adjusted quarterly net income was $507 million, or 67 cents per share. On that basis, analysts expected earnings of 64 cents, according to Reuters Estimates.

Net operating revenue rose 2% to $1.6 billion, but adjusted operating expenses fell 9% to $804 million as the company cut advertising and marketing costs by 15%, and personnel expenses by 12%.

“Revenue was basically in line with what everybody was looking for, but they beat expectations because of better expenses, and a big chunk of that was that advertising costs were lower than expected,” said Robert Dodd, an analyst at Morgan, Keegan & Co.

“The fourth-quarter looks pretty good, but that is because of cost cutting initiatives rather than a recovery,” he said.

Total processed transactions -- which represent transactions processed by VisaNet -- increased 8% to $10.3 billion, but payments volume fell 5% for the quarter ended March 31, which translates to revenue in the following quarter.

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

While the payment volume declined 10.4% in credit cards, it grew 3.6% in debit cards, especially boosted by the United States, where Visa is promoting aggressively the use of debit programs.

“A lot of our transactional increases are being driven by our debit volume. Not our credit volume,” Chief Executive Joseph Saunders said in a conference call with analysts. “None of our projections suggest that (credit volume) is going to come back, come roaring back in any way, shape, or form.”

Chief Financial Officer Byron Pollitt said cross-border volumes, which declined 8% in the fiscal third quarter, showed a contraction of 7% in July, while processed transactions accelerated their growth rates to 9% from 8%.

“While we still see no signs of a true inflection point, these friends are encouraging,” Pollitt said in a conference call with analysts. “The velocity of the downturn has slowed, which is encouraging, but it is still too early to call an inflection point.”

Following those comments, Visa raised its revenue growth outlook for the fourth quarter to mid-single digits from low single digits.

The firm adjusted its estimate of capital expenses for 2009 to around $300 million from a range of $300 million to $350 million.

Visa reiterated its forecast of annual net revenue growth of high single digits in 2009 and at the lower end of the 11% to 15% range in 2010.

The company also affirmed its annual adjusted diluted class A common stock earnings per share will grow over 20%.

Visa also announced it created a joint venture with US Bancorp called Syncada to provide network services to corporations and governments to process and track invoices, and make and receive payments.

The credit card network made an unspecified capital investment in Syncada, while US Bancorp contributed with the technology platform and personnel. (Reuters)