Mastercard beats profit estimates on higher consumer spending

By Pallavi Dewan

(Reuters) - Mastercard Inc, the world's second-biggest payments processor, joined bigger rival Visa Inc on Thursday in reporting a better-than-expected quarterly profit as people spent more using credit and debit cards.

Consumer spending in the United States, which accounts for more than two-thirds of nationwide economic activity, has been on an upswing, supported by a tightening labor market and cooling inflation.

Purchase, New York-based Mastercard, like its bigger rival Visa Inc, generates revenue by facilitating credit- and debit-card transactions and both their revenue streams are closely linked to consumer spending power.

Mastercard also benefited from consumer spending outside the United States, with its cross-border volumes — the value of transactions made by overseas card-holders — rising 14 percent on a local currency basis in the second quarter ended June 30.

Shares of Mastercard were, however, down 1.4 percent after the company said it expected third-quarter revenue growth to mirror the second quarter's 13.3 percent rise.

The forecast probably disappointed investors who were expecting an increase to Mastercard's full-year expectations, said Bernstein analyst Lisa Ellis.

Fears of a potential slowdown in the company's business in the second half of the year could have dragged down the company's stock, Ellis added.

Mastercard's total revenue climbed to $3.05 billion in the second quarter, driven in part by its acquisition of digital payments company Vocalink.

"(Vocalink's) the area that investors are becoming increasingly excited about," Ellis said.

Mastercard has also spent heavily on developing and marketing its Masterpass e-wallet.

The company expects to increase advertising and marketing spending by about $35 million in the third quarter, Chief Financial Officer Martina Hund-Mejean said on a call with analysts.

Hund-Mejean also said operating expenses would increase in the high single percentage digits on an adjusted, currency-neutral basis in the third quarter.

Mastercard's net income rose to $1.18 billion, or $1.10 per share in the second quarter, from $983 million, or 89 cents per share, a year earlier. http://mstr.cd/2vMmERM

Analysts on average had expected earnings of $1.04 per share, according to Thomson Reuters I/B/E/S.

Last week, Visa reported a better-than-expected quarterly profit and raised its annual earnings forecast, as more people across the U.S. and Europe used its payments network.

Shares of Mastercard, up 25 percent so far this year, hit a record high of $132.14 earlier on Thursday.

(Reporting by Pallavi Dewan and Diptendu Lahiri in Bengaluru; Editing by Sai Sachin Ravikumar)