Visa Profit Tops Views; Shares Fall on Cautious Outlook
Visa, reported earnings that easily outstripped expectations in its first ever results as a publicly traded company, but the company's shares declined in extended trading on a cautious outlook.
On an adjusted basis, the company said it earned 52 cents a share in its fiscal second quarter on sales of $1.5 billion.
Visa went public on March 19, only two weeks before the quarter ended.
Analysts polled by Thomson Financial, on average, forecast earnings of 44 cents a share on revenue of $1.42 billion.
The company projects earnings growth of 20 percent over the next three years. Analysts were looking for earnings-per-share growth of 28 percent in the year ending September 2009.
Visa said it expects annual net revenue growth of 11 percent to 15 percent over 3 years.
Visa shares fell more than 3 percent in extended trading after climbing 0.71 percent to $75.63 Monday. Since their public debut, they've risen 72 percent.
Operating income fell during the quarter, to $349 million from a pro forma $394 million in the same quarter in 2007, hurt by higher advertising and marketing expenses and more money being set aside for litigation.
Operating revenue rose to $1.45 billion from $1.19 billion.
Visa, a credit card processor owned by a consortium of banks, went public in history's biggest ever IPO at a price of $44 a share — above expectations — raising nearly $18 billion.
Visa designated nearly $12 billion of the proceeds to buy back shares from banks that essentially co-owned the company. JPMorgan Chase benefited the most, earning $1.5 billion from the IPO. Some other big gainers were Bank of America, which pulled in $776 million from the IPO; National City, which got $532 million; and Citigroup, which raked in $349 million.
Those windfalls came at a serendipitous time for the financial services industry, which has been swallowing huge losses due to poor bets on the mortgage market and preparing for more borrowers to stop repaying their debt.
But unlike most of its peers, Visa's biggest risk going forward is not connected to the deteriorating credit climate. Visa's member banks are the ones lending money to cardholders, not Visa.
Instead, the card processor faces legal worries. Visa set aside $3 billion in IPO proceeds for potential liabilities in lawsuits alleging Visa conspired to stifle competition and fix prices. A case brought by Discover Financial Services is scheduled to go to trial in September, after Visa resolved a similar suit with American Express last year.
Most analysts, however, have been fairly optimistic about the company's prospects. Before Visa reported earnings late Monday, several analysts issued positive ratings for the company, a brand that was launched in 1977 and now has operations in 170 countries.
Proceeding with Caution
Cardholder spending outside the United States grew particularly quickly during the first three months of the year, as more people in developing markets adopted plastic over cash. U.S. spending increased as well, a trend other major card companies reported for early 2008 — suggesting that while U.S. consumer spending on the whole is slowing due to the weak economy, Americans are still using credit.
Total payments volume grew 19 percent to $681 billion compared with the prior year. That was driven by a 9.7 percent rise in U.S. credit card payments and a 27 percent rise in credit payments abroad, as well as a 15.6 percent rise in U.S. debit card payments and a 43.5 percent rise in debit payments abroad.
CEO and Chairman Joseph Saunders said U.S. spending is growing at a similar pace in the current quarter, and that the company has not yet seen any discernible effects of the economic downturn.
But Visa, which earns a fee every time a customer pays with a Visa card, is proceeding cautiously.
"At some point, the softening economy will likely impact our business in the U.S.," Chief Financial Officer Byron Pollitt said in a conference call with analysts.
- Wire service copy contributed to this report.