MasterCard Results Beat Estimates, But Shares Fall

MasterCard posted higher-than-expected quarterly earnings Thursday, but spending volume growth in the United States was weak and investors punished the credit and debit card network's shares.

The second-largest credit and debit card network in the world is facing a slowing economy, which could cut into spending growth.

MasterCard's transaction growth has been torrid since the company went public in 2006, fueled by the growing number of consumers globally using plastic for everyday payments.

That rapid growth has fueled a premium share valuation for MasterCard, which trades at 23 times expected 2009 earnings.

But there are signs of slowing growth in spending volume on the company's network.

Globally, gross volume grew 12.8 percent in the second quarter in local currency terms, with the U.S. growing 6.2 percent.

In the 2007 second quarter, those rates were 13.3 percent and 9.8 percent, respectively.

Investors were unforgiving with the signs of MasterCard's slowing growth, and sent the company's shares down 6 percent to $254.50 in premarket trading.

"This stock is very expensive, and people own it based on its earnings power and its ability to meaningfully beat estimates," said Moshe Katri, an analyst at Cowen and Co in New York.

Shares of MasterCard rival Visa edged lower as well, even though the largest card network posted stronger-than-expected results late Wednesday.

MasterCard posted a second-quarter loss of $747 million on an after-tax charge of $1 billion related to a settlement of antitrust litigation with American Express .

Purchase, New York-based MasterCard said the loss was $5.74 per share and compared with earnings of $252.3 million, or $1.85 a share, in the same quarter a year earlier.

Excluding the charge, MasterCard earned $276 million, or $2.11 a share, beating analysts' average forecast of $2.02 a share, according to Reuters Estimates.

But currency fluctuations were responsible for much of the outperformance, and with MasterCard generally posting much-better-than-expected results in prior quarters, the second-quarter results were seen as not good enough.

"There was no big positive surprise in these results, and they've had a lot of positive surprises in prior quarters. Investors expect them now," said Chris Brendler, an analyst at Stifel Nicolaus in Baltimore.

Second-quarter revenue rose 25 percent to $1.2 billion.

In slides posted with regulators for the company's upcoming conference call, MasterCard said it continues to expect double-digit revenue growth for 2008, but growth will be slower than in 2007, echoing comments it made last quarter.