By Nicole Bullock in New York
MasterCard, the payment processing network, on Wednesday said that it took a $495m after-tax charge in the fourth quarter related to litigation against what otherwise were better than expected earnings.
MasterCard and Visa, its rival, face lawsuits from merchants alleging price fixing over fees. MasterCard said that the fourth-quarter charge represented the company?s financial portion of the potential settlement in these cases, which have carried on for several years. A trial is expected to commence in September.
Excluding the charge, consumers? increasing propensity to spend money using credit and debit cards drove a 24 per cent increase in fourth-quarter profit from the same quarter a year ago. Net income was $514m, or $4.03 per share, in the three months ended December 31, beating analysts? estimates for net income of $498m and $3.91 per share. Net revenue increased 20.2 per cent to $1.7bn, matching Wall Street forecasts.
?We are seeing sustained momentum driven by new deals and the ongoing shift away from paper-based payments,? said Ajay Banga, MasterCard?s president and chief executive officer.
Including the charge, however, MasterCard reported net income of just $19m, or $0.15 cents per share in the fourth quarter versus net income of $415m and $3.17 per share in the same quarter a year ago.
By mid-morning in New York, shares had surged 6 per cent to $379.02.
In the quarter, processed transactions rose 23.2 per cent to 7.7bn, the company said, while the amount spent on MasterCard branded cards rose 16.3 per cent to $863bn. As of December 31, the company?s customers had issued 1.8bn MasterCard and Maestro brand cards, up more than 11 per cent from the previous year.
The increase in MasterCard?s volumes came in spite of sluggish US economic growth in the second half of last year and an escalating debt crisis in Europe.
?For the full-year, despite ongoing uncertainties, we posted strong performance ahead of our long-term objectives,? Mr Banga said.
For the full-year 2011, the company had net income of $2.4bn, or $18.70 per share, excluding the litigation charge in the fourth quarter. Last year, MasterCard stock rose 66 per cent, making it one of the top performers in the S&P 500.
Company officials said they were confident MasterCard could achieve a compound annual growth rate of 12 to14 per cent in net revenues and at least 20 per cent in earnings per share this year and next.
MasterCard?s financial results are seen as a barometer of broad-based consumer spending. American Express last month reported higher than expected earnings for the fourth quarter, capping a year of record cardholder spending, but its customers are more affluent.
? The Financial Times Limited 2012