Visa's Profit Rises 41% as More Consumers Use Cards (Update1)
By Hugh Son
July 30 (Bloomberg) -- Visa Inc., the world's largest credit-card company, said profit rose 41 percent on gains from U.S. debit-card purchases and faster growth overseas.
Net income leapt to $422 million, or 51 cents a share in the fiscal third quarter, from $299 million a year earlier, the San Francisco-based company said today in a statement. Adjusted net income was 59 cents a share, beating the 49-cent average estimate of 22 analysts surveyed by Bloomberg. Visa raised its 2008 operating margin outlook to the ``mid-40 percent range.''
Visa has advanced 78 percent since its March IPO as investors clamor for the network handling the most credit and debit transactions. The company has three-quarters of the U.S. signature debit market and may benefit amid the slowing U.S. economy as consumers rely more on debit cards, which are linked to checking accounts, to pay for gas and food.
``What we have seen is a very resilient usage of debit cards and that is over half of the U.S. business,'' said Timothy Willi, an analyst at Avondale Partners LLC in a Bloomberg Television interview. He rates the shares ``market perform.''
Purchases made on debit cards increased 16 percent to $193 billion in the U.S. and 44 percent to $35 billion in the rest of the world for the quarter ended March, Visa said. Spending on credit cards rose 8.1 percent to $195 billion in the U.S. The company reports these figures three months in arrears.
Visa's operating revenue grew in its third quarter by 18 percent to $1.6 billion.
Debit Drives Growth
``Despite a challenging economic environment in the United States and a softening in traditional credit card spending, the strength of Visa's debit business drove solid growth,'' Chief Executive Officer Joe Saunders said in the statement.
Consumers tend to purchase essentials including food and gas with debit cards and use credit cards for luxuries, said Bruce Harting of Lehman Brothers Holdings Inc. in a July 28 note.
Unlike rival American Express Co., Visa and MasterCard are insulated from rising U.S. defaults because they don't make loans to cardholders. Second-quarter results from credit-card lenders show consumer defaults and late payments are rising as consumers are squeezed by rising unemployment and higher prices.
American Express, the New York-based credit-card lender, said income fell 37 percent to $655 million as it added $600 million to loss reserves. Capital One Financial Corp., the McLean, Virginia-based card issuer, said profit fell 40 percent to $452.9 million.
Visa had 46 percent of the $848 billion spent on U.S. credit and debit cards in 2007, compared with MasterCard's 36 percent and 12 percent for American Express, according to the Nilson Report, an industry newsletter based in Carpinteria, California. Consumers will use credit and debit cards for 55 percent of all U.S. transactions by 2011, rising from 40 percent in 2005, according to the publication.
The results were released after the close of regular U.S. trading. Visa rose $2.48, or 3.3 percent, to $78.45 at 4 p.m. in New York Stock Exchange composite trading.
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In Bloomberg.com
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