Visa profit rises 51 percent, but regulations weigh

By Maria Aspan

NEW YORK (BestGrowthStock) – Visa Inc (V.N: ) reported an increase in quarterly profit of more than 50 percent, but the company’s shares fell because of regulatory concerns and its failure to outpace Wall Street estimates as much as investors had come to expect.

The company’s shares fell about 2 percent in after-market trading.

“It was maybe not the blowout quarter some investors were expecting,” said Signal Hill analyst Mayank Tandon. “I think it’s understandable that we’re seeing some profit-taking, given that the results were good but not great.”

The company also authorized a $1 billion share repurchase and said it expected net revenue to grow 11 percent to 15 percent in its coming fiscal 2011 year.

Chief Executive Joseph Saunders said in an statement that Visa plans to continue investing to expand its business, despite a “very challenging business environment.”

Visa and rival MasterCard Inc (MA.N: ) do not lend at all and were relatively insulated from the massive credit losses that affected banks during the financial crisis. But now they are facing increasing U.S. regulatory scrutiny over their processing businesses.

The new U.S. Dodd-Frank financial reform law will restrict the processing fees that Visa and MasterCard earn from debit card transactions. This month, both companies also settled a Justice Department antitrust lawsuit over their processing rules.

“There’s been so much fear that has been built into Visa and MasterCard in general … I think the concerns over Visa and the industry were overblown by investors,” said Jim Tierney, the chief investment officer of W.P. Stewart, which owns shares of both networks.

Visa’s shares fell more than 20 percent this past summer, as investors worried that the law would cut deeply into its future profits. The shares have rebounded somewhat since Visa settled the lawsuit, but are still about 10 percent lower than before the law’s fee restriction provision was first introduced.

The debit card industry is also awaiting further rules from the Federal Reserve, which will define exactly how the law restricts processing. Visa said on Wednesday it will have a better idea of how its future profits will be affected after seeing those rules.

But “investors had high expectations — they wanted more clarity,” said Evan Staples, equity analyst with First American Funds, which owns Visa shares.

“Some idea of what could or could not happen would have been more positive,” he said.

SPENDING AGAIN

Visa, the world’s largest credit and debit card processing network, reported net income of $774 million, or $1.06 per share, on Wednesday for its fiscal fourth quarter, ended September 30. That compared with $514 million, or 69 cents per share, a year earlier.

Analysts on average had expected Visa to earn 94 cents per share, according to Thomson Reuters I/B/E/S.

The San Francisco-based company, which processes transactions done with credit and debit cards bearing the Visa name, makes money every time someone buys something with one of the cards. Its revenues have grown this year as U.S. consumers have become more willing to spend again.

Payment volume on Visa credit and debit cards rose 14 percent to $802 billion in the quarter ended in June from a year earlier, boosting revenue in the latest quarter. Total operating revenue rose 13 percent to $2.1 billion for the quarter, slightly above expectations.

Cross border volume growth was 16 percent for the quarter ended in September, indicating that consumers are more willing to spend again on travel and other discretionary items, instead of restricting themselves to basic necessities as they did during the worst of the recession.

Visa shares closed down 11 cents at $79.92 on Wednesday, and dropped about 2 percent in after-hours trade.

(Reporting by Maria Aspan; Editing by Steve Orlofsky)

Visa profit rises 51 percent, but regulations weigh