(ap) - Visa Inc., the world's largest credit and debit card processor, said Monday its profit rose 28 percent in the first three months of the year as customers around the world charged more to their cards.
Cardholder spending outside the United States grew particularly quickly, as more people in developing markets adopted credit and debit cards over cash. U.S. spending increased as well, a trend other major card companies also reported for early 2008 - suggesting that while U.S. consumer spending on the whole is slowing down due to the weak economy, people are still using credit.
Visa, however, is proceeding cautiously.
"At some point, the softening economy will likely impact our business in the U.S.," Chief Financial Officer Byron Pollitt said in a conference call with analysts.
Visa issued a three-year outlook that some might deem conservative for a company considered to be one of the best positioned in the card business: annual net revenue growth of 11 percent to 15 percent, annual adjusted operating margin in the low 40 percent range, annual adjusted earnings-per-share growth of 20 percent or greater, and annual free cash flow above $1 billion (€640 million).
Shares fell 4 percent in after-hours trading, having risen 53 cents to close at $75.63. Investors have set the bar high for the San Francisco-based company - Visa shares have jumped more than 70 percent in value since debuting at $44 a share March 19.
After the markets closed Monday, Visa posted fiscal second-quarter profit of $314 million (€201 million), or 39 cents a share, up from $246 million in the same period last year.
Analysts surveyed by Thomson Financial predicted, on average, earnings of 46 cents per share. Analysts tend to exclude one-time gains and losses from their forecasts, and Visa's earnings per share reflecting a normalized tax rate and excluding certain factors including litigation amounted to 52 cents a share.
Net operating revenue for the quarter ended March 31 amounted to $1.45 billion (€930 million) - up from $1.19 billion a year ago, but in line with analysts' estimates.
Visa's initial public offering in March was the largest U.S. IPO ever, raising $18 billion (€11.52 billion) and then another $1.7 billion (€1.09 billion) after investment bankers chose to buy additional shares.
Visa designated nearly $12 billion (€7.68 billion) of the proceeds to buy back shares from banks that essentially co-owned the company. JPMorgan Chase & Co. benefited the most, earning $1.5 billion (€960 million) from the IPO. Some other big gainers were Bank of America Corp., which pulled in $776 million (€496.5 million) from the IPO; National City Corp., which got $532 million (€340.4 million); and Citigroup Inc., which raked in $349 million (€223.32 million).
Those windfalls came at a serendipitous time for the financial services industry, which has been swallowing huge losses due to poor bets on the mortgage market and preparing for more borrowers to stop repaying their debt.
But unlike most of its peers, Visa's biggest risk going forward is not connected to the deteriorating credit climate. Visa's member banks are the ones lending money to cardholders, not Visa.
Instead, the card processor faces legal worries. Visa set aside $3 billion (€1.92 billion) in IPO proceeds for potential liabilities in lawsuits alleging Visa conspired to stifle competition and fix prices. A case brought by Discover Financial Services LLC is scheduled to go to trial in September, after Visa settled a similar suit with American Express Co. last year.
The settlement requires Visa to pay $2.07 billion (€1.32 billion) over the next four years. During the second quarter, Visa said it paid American Express $945 million (€604.7 million).
Most analysts, however, have been fairly optimistic about Visa's prospects. Before Visa reported earnings late Monday, several analysts issued positive ratings for the company, a brand that was launched in 1977 and now has operations in 170 countries.
"Despite a challenging economic environment, Visa recorded strong growth in payments volume and transactions globally and across our diverse suite of products - a trend which is continuing into the fiscal third quarter," Visa Chairman and CEO Joseph Saunders said in a statement Monday.