April 29, 2009 / 8:32 PM / 11 years ago

UPDATE 4-Visa Q2 earnings beat estimates; lowers costs

* Net income rises to $536 million, or 71 cents per share

* Adjusted EPS beats estimates

* Debit volumes surpass credit volumes in the U.S.

* Shares slightly lower in after-hours trading (Adds details on credit and debit volumes, analyst comment)

By Juan Lagorio

NEW YORK, April 29 (Reuters) - Visa Inc (V.N) posted better-than-expected quarterly earnings on Wednesday as the world’s largest credit card network increased prices, slashed expenses and consumers used debit cards more.

Net income rose 70 percent to $536 million, or 71 cents per diluted class A share, for the second quarter ended March 31, compared with a profit of $314 million, or 39 cents per diluted share, a year earlier.

On an adjusted basis, reflecting a normalized tax rate, restructuring and purchase amortizations, quarterly net income rose 38 percent to $553 million, or 73 cents per diluted class A common share. On that basis, analysts expected earnings of 64 cents per share, according to Reuters Estimates.

“What caught my attention most was the expense control they had. For instance, advertising falling from $210 million to $196 million. Their ability to cut costs in this environment is surprising,” said Ken Crawford, senior portfolio manager at Argent Capital Management.

“It speaks of the flexibility and profitability of card processor companies. MasterCard Inc (MA.N) reports on Friday morning and it sets a stage,” Crawford said.

Adjusted operating expenses fell 5 percent to $745 million, as the company cut personnel, advertising and marketing, as well as consulting fees, and administrative costs.

Net operating revenue rose 13 percent to $1.6 billion, while total processed transactions — which represent transactions processed by VisaNet — increased 6 percent to 9.4 billion.

Visa said payments volume fell 1 percent for the quarter ended Dec. 31, which translates to revenue in the following quarter.

“The results turned out to be pretty good,” said Robert Dodd, an analyst at Morgan, Keenan & Company.

DEBIT OFFSETS IMPACT OF CREDIT CRISIS

Visa is partially insulated from the credit crisis because it processes transactions rather than lends funds. However, the company has seen a slowdown in the growth of revenue and transaction volumes as battered consumers used their credit cards less.

Still, debt-burdened consumers have been increasing the use of their debit cards.

“The continued strength of debit is attributable in part to that product’s strong correlation with non-discretionary spend categories, which are holding up relatively well in the face of a tough economy,” Chief Financial Officer Byron Pollitt said in a conference call with analysts.

“In fact, in the quarter ending December, for the first time in Visa’s history, U.S. debit payment volumes eclipsed that of credit,” Pollitt added.

Payments volume fell 7 percent in credit in the United States to $203 billion, while debit volumes grew 5.5 percent to $206 billion.

In addition, Visa said debit grew in the first four months of 2009, while credit shrank.

Visa forecast further pressure on its revenue in the second half of its 2009 fiscal year, which ends in September, hurt by foreign exchange headwinds as the U.S. dollar strengthened in recent months and lower cross-border transactions given the global economic recession.

But the company anticipated a recovery from October helped by more favorable year-over-year gas prices and foreign exchange rates, if the global economy shows signs of improvement.

Visa increased its forecast for its annual adjusted operating margin to the low 50 percent range from a range of the high 40 percent to the low 50 percent range.

NO IMPACT FROM SWINE FLU

The firm said it did not expect a significant impact on its revenue growth from the swine influenza — which has already killed 159 people in Mexico and is threatening to become a pandemic flu.

The company affirmed its forecast of an annual net revenue growth of high single digits in 2009 and at the lower end of the 11 to 15 percent range in 2010.

Visa also reiterated its annual adjusted diluted class A common stock earnings per share will grow over 20 percent.

Visa shares were slightly lower after closing up 4.6 percent at $63.51 on the New York Stock Exchange. The stock is up 20 percent in 2009. (Reporting by Juan Lagorio; Editing by Phil Berlowitz and Andre Grenon)

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