Earnings Preview: Visa to report 4th-qtr results

October 25, 2011 - 5:10 PM

NEW YORK (AP) — Credit and debit card payment processor Visa Inc. is expected to report continued growth for its fiscal fourth quarter when it post results after the markets close on Wednesday.

WHAT TO WATCH FOR: The banks that issue the most Visa cards have reported strong gains in their card businesses in recent weeks, which bodes well for Visa's quarterly results. Morgan Stanley analyst Glenn Fodor said that bank results showed that card fundamentals continued to improve, "which should translate into steady and continued volume, revenue and earnings growth" for Visa.

The first portion of new federal regulations that limit the fees banks can charge retailers for processing debit card purchases kicked in Oct. 1, so they won't impact the quarter's results. But analysts expect to hear some detail on how Visa's strategy for dealing with the rules is working so far this month.

Another part of the regulation requires merchants have a choice of which network handles their transactions, called "routing." This portion could more directly impact Visa if retailers choose to have transactions processed through lower-cost competition.

Bernstein Research analyst Rod Bourgeois said he thinks the routing issue the main risk to Visa, which doesn't issue cards but is the largest processor of debit transactions. Competition for merchant routing preferences won't likely end in the coming fiscal year, he said, and some of Visa's strategies aimed at protecting its market share may result in lower revenue from this part of the business. "We're not convinced by Visa's assertion that its growth will return to normal" in 2013, he wrote. Bourgeois rates Visa "Market Perform" and has an $88.50 price target on the shares.

WHY IT MATTERS: Visa, based in San Francisco, is the world's largest processor of debit and credit card payments. Consumers have embraced debit cards in recent years — they are now the most popular form of electronic payment. One reason for that has been concerns about the economy, which have led individuals to aim for more control over their spending.

Some banks are responding to new debit card regulations by adding customer fees, making it appear they are trying to steer people back to using credit cards. Credit card use has risen in recent months, and banks are reporting fewer problem customers making late payments or defaulting on their balances, but those improvements are flattening out after two years of steady improvement.

With the economy still uncertain, it's not clear if consumers are ready to start running up credit card balances again. Total balances have dropped about 19 percent since their peak in September 2008, to $790 billion in August, according to the Federal Reserve. The banks have said that more customers are paying their balances off each month, which is a positive for payment processors like Visa, because it points to increased use.

WHAT'S EXPECTED: Analysts, on average, are expecting a profit of $1.25 per share on revenue of $2.4 billion, according to FactSet.

LAST YEAR'S QUARTER: The payments processor posted net income of $774 million, or $1.06 per share, on revenue of $2.12 billion.