UPDATE 3-MasterCard Q3 profit beats estimates as costs fall

By Juan Lagorio NEW YORK, Nov 3 (Reuters) - MasterCard Inc reported higher-than-expected quarterly earnings on Tuesday as the world's second-largest credit card network raised fees to banks and cut expenses, while consumers used their debit cards more. "I believe the worst is behind us and there are certainly some encouraging signs in the recent economic data," Chief Executive Robert Selander said in a conference call with analysts. MasterCard's third-quarter net income was $452 million, or $3.45 per share, compared with a loss of $194 million, or $1.48 per share, a year earlier. Excluding special items, the credit card network posted earnings per share of $3.48, beating analysts' forecast of $2.94, according to Thomson Reuters I/B/E/S. The company said special items for the third quarter of 2009 represented $6.2 million of litigation settlement charges. The special item for the third quarter of 2008 represented an $827.5 million net pre-tax charge related to an antitrust litigation settlement. Revenue rose 2 percent to $1.4 billion, and also beat analysts' forecast, boosted by higher fees charged to banks and increased consumer use of credit and debit cards. These factors were partially offset by the impact of slightly lower cross border volumes. However, operating expenses declined 13 percent to $685 million, as the company trimmed advertising and marketing spending by 29 percent and reduced personnel and administrative costs by 7.9 percent. Processed transactions grew 7.6 percent in the quarter to 5.8 billion boosted by a more intense use of credit and debit cards in Asia Pacific, Middle East, Africa and Latin America. MasterCard's gross dollar volume was up 0.3 percent on a local currency basis to $633 billion. The company also benefited of a lower tax rate. MasterCard's effective tax rate was 32.9 percent in the third quarter, down from 39.7 percent a year ago. "These results reveal a positive inflection point for revenue growth that should only accelerate in the coming months as the headwinds from the strong dollar fade and as consumer spending increases," Barclays Capital analyst Bruce Harting said in a research note. Investors expectations were high about MasterCard's profits, after the company's larger rival, Visa Inc, reported better-than-expected quarterly earnings last week. "After Visa reported strong revenue trends, we raised our expectations for MasterCard, which the company met. Because the beat relative to those expectations was due to lower than expected marketing spend, investor enthusiasm for the results may be muted," Harting said. MasterCard shares were off 2.7 percent at $216.30 in morning trading, amid weakness in the financial sector. The stock is up 57 percent in 2009. (Reporting by Juan Lagorio, editing by Gerald E. McCormick, Dave Zimmerman) Keywords: MASTERCARD/ (e-mail [e-mail]; Reuters Messaging: [e-mail]; Tel [phone]) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved.

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