MasterCard shares up after earnings beat estimates

The MasterCard logo is seen on two credit cards April 28, 2008.

NEW YORK (Reuters) - MasterCard Inc (MA.N) reported on Thursday quarterly earnings fell 21 percent, but the results beat forecasts as the world's second-largest credit card network increased prices and cut expenses, sending its shares higher.

However, revenue grew at a much slower pace than in recent quarters and was boosted mainly by price increases rather than higher transaction volumes, a sign the company is feeling the impact of a global slowdown in consumer spending.

The company's bigger rival, Visa Inc (V.N), posted better-than-expected quarterly earnings on Wednesday but lowered its revenue growth forecast, citing tougher economic conditions for 2009.

MasterCard also reduced operating expenses 16 percent as it cut advertising and marketing costs aggressively, tightened travel expenses, and slashed consulting fees.

"I think the numbers look pretty good on the surface -- revenue growth of double digits and very good expense control," said Ken Crawford, senior portfolio manager at Argent Capital Management.

MasterCard shares were up 10 percent at $154.28 in midday trading on the New York Stock Exchange, outperforming a 2.5 percent rise in the Dow Jones U.S. Financials index .DJUSFN.

STRONG BEAT

Excluding a special item related to the settlement of a consumer protection suit, the company earned $243 million, or $1.87 per share, in the fourth quarter. On that basis, analysts had expected $1.61 per share, according to Reuters Estimates.

Revenue increased 14.2 percent to $1.2 billion as the company increased the prices it charges banks for cross-border transactions worldwide and fees in Europe.

MasterCard "is not immune to the economic slowdown by any means, but the ability to generate 8 (percentage) points of revenue growth through prices is very unique," Crawford said.

MasterCard said 2009 net revenue growth will likely fall short of its long-term objective of 12 percent to 15 percent amid a steep slowdown in consumer spending from the United States to Europe and Asia.

Chief Executive Robert Selander said on a conference call with analysts that worldwide process volume were essentially flat in January compared with a year earlier. He said if the trend continued, it would be a challenge to achieve the new revenue growth target.

"We (are bracing) ourselves for a pretty tough year ahead," MasterCard Chief Financial Officer Martina Hund-Mejean told Reuters.

Selander said on a conference call, "We're working hard on creating flexibility and options as it relates to where and how we spend money, should that situation either persist or worsen over the course of the year."

SPENDING IS MAIN CONCERN

Gross dollar volume increased 3.4 percent to $605 billion on a local currency basis, but the growth was slower than in recent quarters. Purchase volume grew only 3.1 percent, hit by lower use of credit cards in the United States and a slowdown in Europe, Canada, Asia and Latin America.

"What obviously concerns us is the decrease in consumer spending," Hund-Mejean said. "We don't believe that you will see anything better in 2009 than what we saw at the end of the fourth quarter."

The company reaffirmed its longer-term objectives of annual margin expansion of 3 to 5 percentage points and average annual net income growth of 20 percent to 30 percent.

(Editing by John Wallace)