Visa fiscal 1st-qtr profit up 16 pct as card use rises worldwide; US debit growth rate slows

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The VISA logo and hologram are shown imprinted on a VISA credit card in Boston, Tuesday, Feb. 7, 2012. Visa Inc., reports quarterly financial results Wednesday, Feb. 8, 2012, after the market close. (AP Photo/Bill Sikes)

NEW YORK, N.Y. - Visa Inc. said Wednesday that its fiscal first-quarter profit rose 16 per cent, as card use rose both in the U.S. and overseas.

The San Francisco-based payments processor posted a notable 10 per cent increase in U.S. credit card use, stating much of that growth came from a continued revival in spending by affluent consumers.

But debit card use rose just 6 per cent. That's the slowest debit card growth rate in more than a year, and comes during the first three-month period that new rules were in place to limit the fees retailers pay to accept the cards.

The rules also require that starting in April, merchants get a choice on which network handles their debit transactions. In the last few months, Visa has been offering incentives to encourage stores to choose its network.

Debit growth has been slowing over the past few quarters. In January, debit growth slowed further, to 4 per cent, said Chief Financial Officer Byron Pollitt during a conference call to discuss results. "We are beginning to see the impact of the new debit rules," he said.

Edward Jones analyst Shannon Stemm noted that, while it's too soon to determine the overall impact of the new regulations, rival MasterCard Inc.'s results last week showed some debit market share gains versus Visa, which still holds the bulk of the U.S. debit market.

Visa CEO Joseph Saunders acknowledged during the conference call that the regulations will reduce Visa's U.S. debit volumes, and said "the new legal requirements are changing competitive dynamics," particularly the aspect of merchant choice in networks.

Some banks are already beginning to make changes that will allow for retailers to make those choices, he said. One major institution's move to remove the option of Visa's Interlink network from its cards was the main driver for the slowdown in debit growth seen during the quarter.

But Sanders said the company is "aggressively pursuing" its strategy to deal with the regulations, and is poised to sign new deals with some big banks to put Interlink as an option for merchants on the backs of cards that don't say "Visa" on the front. The company is also pushing incentives for merchants to choose Visa processing.

"We are making the best of an obviously negative event," he said, stating that the results of the rules so far are "modestly better" than he expected when they were announced last summer. "It's fair to say that the dust is still settling."

Despite the disruptions in the debit market, Visa's results for the quarter showed strong growth, indicating that consumers continue to shift away from cash and toward plastic and electronic payments.

Visa posted net income for the three months ended Dec. 31 of $1.03 billion, or $1.49 per share. That compares with $884 million, or $1.23 per share, in the year-earlier period. There were 4 per cent fewer outstanding shares in the recent quarter due to buybacks, which increases per-share results.

Revenue for the quarter rose 14 per cent to $2.55 billion, from $2.24 billion the prior year.

Analysts, on average, were expecting profit of $1.45 per share, on revenue of $2.47 billion.

Visa, the world's largest payment network, said the gains reflected higher card use, increased data processing revenue and a 19 per cent boost in international transactions. It is aiming to increase its business overseas so that it eventually generates more than half of its revenue. For the quarter, its international business accounted for 46 per cent of net revenue, Saunders said..

The company also said its board approved another $500 million share buyback program.

No charge was recorded related to an ongoing lawsuit from merchants regarding the fees they pay to accept credit cards, known as interchange. That was not the case with MasterCard, which recorded a hefty charge that drove down its quarterly results. Visa's structure created when it went public in 2008 protects it from liability in such suits. However, Saunders said the company did increase the balance in its escrow account to cover legal costs.

The CEO said the mediation in the case appears to be making progress, but like his counterpart Ajay Banga at MasterCard, he stated, "Visa is unwilling to agree to any significant or long-term credit interchange rate reductions, or any settlement agreement that doesn't provide a full resolution to that and other key issues."

That statement is likely to be seen as a positive by Wall Street, which is concerned about the potential for a forced cut in credit interchange fees that might echo the required debit card fee reductions.

Visa now expects annual revenue growth in the low double digits, which removes the lower end of its prior forecast for high-single digit to low-double digit growth. It forecast earnings per share growth in the high teens, updating its prior projection for a high single-to low-double digit range.

The results buoyed the stock. In aftermarket electronic trading, Visa shares added $3.35, or 3 per cent, to $111.70. The stock closed the regular session up $1.37 at $108.35.