MA MasterCard Incorporated

By AnnaMaria Andriotis and Imani Moise 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (May 3, 2018).

Mastercard Inc. reported higher-than-expected profit and revenue for the first quarter due to increased consumer spending and confidence.

The company, which is the second-largest U.S. card network, increased guidance for its 2018 revenue, a sign that it believes the healthy economic environment will continue. It also increased a key expense growth projection as the company accelerates investments in several areas, including security.

Mastercard reported a profit of $1.49 billion, or $1.41 a share, up from $1.08 billion, or $1 a share, a year earlier. On an adjusted basis, earnings rose 49% to $1.50 a share from a year earlier. Analysts surveyed by Thomson Reuters had expected $1.25.

Shares climbed 3.5% to $186.80 in morning trading, higher than the record closing price of $183.24 set in March. The stock has gained 22.5% so far this year while the S&P 500 has inched 0.8% lower.

Gross dollar volume, or the total value of all transactions on credit, debit and prepaid cards processed by the company, rose 14% to $1.4 trillion.

The payment giant said revenue jumped 31% to $3.58 billion, topping the $3.25 billion forecast by analysts. The company's top-line was helped by acquisitions and an increase in cardholders using their cards outside of the country they are issued in. Cross-border volume fee revenue increased 26% from a year prior. The company also increased its organic net revenue growth guidance to mid-teens percent growth for the year, up slightly from the previous guidance.

The company is benefiting from a strong credit-card market as consumers shift more of their spending to cards. Most large U.S. banks that issue credit cards reported increases in credit-card purchase volume in the first quarter.

Mastercard's finance chief, Martina Hund-Mejean, said on the earnings call that cross-border volumes in April, through April 28, grew 19% globally. That was down from the 21% cross-border volume growth in the first quarter, in part due to the drop-off of issuers allowing cryptocurrency wallet funding. Large U.S. issuers, including Citigroup Inc, Bank of America Corp., and Capital One Financial Corp., said during the first quarter that they would no longer allow consumers to buy bitcoin with their credit cards.

Mastercard's operating expenses totaled $1.64 billion, up 35% from a year prior, excluding special items relating to litigation provisions. General and administrative expenses, which make up the majority of the company's expenses, increased 36%. Advertising and marketing expenses rose 32% to $224 million. Mastercard also increased its organic expense growth guidance to high-single digit percent growth from mid-single digits previously.

Following the earnings call, Mastercard said in a regulatory filing that it took a $19 million charge in the first quarter relating to settlements with U.K. merchants and a $70 million charge resulting from settlements with more than 70 European claimants.

Merchants "have filed or threatened litigation with respect to interchange rates in Europe for purported damages exceeding $1 billion," the company said. Interchange fees are set by card networks, including Mastercard, and paid by merchants to the banks that issue cards when consumers shop with them. Merchants in the U.S. and abroad have long argued that these fees, in particular with credit cards, are too high.

Regarding its efforts to expand in China, Mastercard CEO Ajay Banga said the company applied for a domestic license with a joint venture and that it is waiting for clarity from the Chinese government. The Wall Street Journal reported in April that Mastercard had formed a partnership with three Chinese entities, had applied with the central bank to conduct card-clearing and settlement transactions in the country, and that its joint-venture application hadn't yet been accepted by the People's Bank of China.

Separately, Mr. Banga discussed his support for a move to a single-pay button at online checkout. Visa and Mastercard said in April they are planning a move toward a shared pay button on which consumers can save their payment credentials. This would replace the individual pay buttons that card networks have rolled out in recent years.

Write to AnnaMaria Andriotis at annamaria.andriotis@wsj.com and Imani Moise at imani.moise@wsj.com

(END) Dow Jones Newswires

May 03, 2018 02:47 ET (06:47 GMT)

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