Monday, May 2, 2011

MasterCard Inc. (NYSE: MA): Q1 Earnings Preview 2011

MasterCard Inc. (NYSE: MA) is scheduled to release its first-quarter earnings before the opening bell on Tuesday, May 3, 2011. Analysts, on average, expect the company to report earnings of $4.10 per share on revenue of $1.46 billion. In the year ago quarter, the company reported earnings of $3.46 per share on revenue of $1.31 billion.

MasterCard Incorporated, together with its subsidiaries, provides transaction processing and related services to customers principally in support of their credit, deposit access, electronic cash and automated teller machine payment card programs, and travelers cheque programs.

In the preceding fourth-quarter, the Purchase, New York-based company's net income was $415 million, or $3.16 per share, compared to $294 million, or $2.24 per share, in the year-ago quarter. Revenue grew 11 percent to $1.44 billion from $1.30 billion in the same quarter last year. Analysts, on average, expected the company to report earnings of $3.04 per share on revenue of $1.42 billion.

At its last earnings call in February, MasterCard said that the U.S. economic recovery will help its revenue grow more in 2011 than it did in 2010, despite the prospect of increased U.S. regulation.

MasterCard, like other payment solutions company, is benefiting from a broad trend away from cash and checks and toward electronic forms of payment. When purchases are made using debit and credit cards carrying the MasterCard logo, the company collects fees from each transaction. That makes the company's results sensitive to consumer spending. However, unlike credit-card companies, MasterCard doesn't lend money, so it wasn't hit hard by the credit crisis. Moreover, the company is cultivating new business in emerging markets.

MasterCard has relatively few opportunities for growth in the United States, where rival Visa dominates the debit processing market and most consumers already use credit and debit cards. Moreover, uncertainty stemming from financial overhaul, which includes curbs on debit-card transaction fees, has taken some shine off MasterCard's shares.  The Federal Reserve has proposed capping interchange, or “swipe” fees, at 12 cents for each debit-card transaction, replacing a formula that costs merchants about 1 percent of the purchase price. The caps, mandated by the Dodd-Frank law that overhauled the financial industry last year, may reduce annual revenue at U.S. banks by more than $12 billion.

Among other developments, the company's board recently doubled its existing share repurchase program that was announced in September 2010. The board increased its authorization to repurchase an additional $1.0 billion of its Class A common stock in open market transactions.

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