MasterCard Q2 profit beats estimates; shares off

NEW YORK (Reuters) - MasterCard Inc (MA.N) posted higher-than-expected adjusted earnings on Thursday, but U.S. credit card spending growth was weak and management expressed caution about the economy, sending its shares tumbling 11 percent.

The company posted a second-quarter loss after a charge of $1 billion related to a litigation settlement, but excluding the item, it topped Wall Street expectations.

MasterCard shares have risen more than 500 percent since their debut in 2006 as a growing number of consumers globally use plastic for everyday payments, fueling torrid transaction processing growth on its credit and debit card network.

Because MasterCard and its larger competitor, Visa Inc (V.N), do not make loans, many investors saw the companies as protected against economic slowdown.

But the latest results from the two companies indicate otherwise. MasterCard said U.S. credit card spending growth, which accounts for about one-quarter of the network's overall spending volume, was an anemic 0.7 percent in the second quarter, compared with 4.4 percent in the first quarter.

"The slowdown in the U.S. economy has had an affect on our growth in the United States," said MasterCard Chief Financial Officer Martina Hund-Mejean on a conference call with investors. She added later that the current economic environment was "extraordinarily challenging."

Visa said growth is slowing in spending by customers traveling outside their home countries -- among its most profitable transactions.

Worried by a report Thursday morning that showed tepid U.S. economic growth in the second quarter -- even with tax refund checks -- and a separate report showing a jump in jobless claims, investors were less willing to abide MasterCard's premium valuation.

On Thursday, MasterCard shares fell a little closer to earth, down $30.07 to $240.66 on the New York Stock Exchange. The stock traded at about 22 times forward earnings.

"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.

Visa's shares dropped 6.5 percent to $73.35 on the NYSE.

NO POSITIVE SURPRISES

Purchase, New York-based MasterCard posted a second-quarter loss of $747 million, or $5.74 per share, after an aftertax charge of $1 billion related to a settlement of antitrust litigation with American Express Co (AXP.N).

A year earlier, it had earnings of $252.3 million, or $1.85 a share.

Excluding the charge, MasterCard earned $276 million, or $2.11 a share. On that basis, analysts' average expectation was $2.02 a share, according to Reuters Estimates.

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 report was 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.

(Reporting by Dan Wilchins; Editing by John Wallace/Jeffrey Benkoe)