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Strong dollar chips away at MasterCard's revenue
MasterCard misses revenue estimate as strong dollar reduces overseas income
By The Associated Press

NEW YORK (AP) The strong U.S. dollar swallowed a chunk of MasterCard's earnings from overseas, leading to revenue growth that was slower than investors were hoping for.

MasterCard on Wednesday reported a 9 percent increase in revenue for the second quarter to $1.82 billion compared with the same three-month period a year earlier. That fell short of the $1.88 billion Wall Street analysts were expecting.

Analysts saw the slowdown as a worrisome sign for a company which has been on a tear for two years.

"(It was) the first quarter where the company didn't grow at least double digits since the third quarter of 2010," said Thomas McCrohan, analyst at financial services firm Janney Capital Markets.

Investors bailed out of the stock, which fell $9.57, or 2 percent, to $427 in morning trading.

In the second quarter, the dollar's value against most international currencies soared, which lowered the value of the company's income in other countries when converted back into dollars. The company's revenue would have grown 13 percent without the weak currency translations. The euro declined about 4.5 percent against the dollar during the quarter.

MasterCard chief financial officer Martina Hund-Mejean said the company reaffirmed its targets for growth over the next two years and stressed that it excludes all currency fluctuations.

"We live in a connected global environment and with the dollar's strengthening we are facing a headwind in translating our overseas earnings," Hund-Mejean said.

The United States was among the weakest areas of growth for MasterCard, though other economies of the world like Europe and Asia slowed more.

In the U.S., the amount of dollars charged on cards with the MasterCard logo plummeted to 9 percent of overall volume, compared with 14 percent in the first quarter.

MasterCard's CEO Ajay Banga pointed out that lower gas prices weren't translating into spending, reflecting the anxiety that consumers have over uncertainty in the broader economy.

Spending remained steady in Europe and Asia, but Banga expected those areas to weaken in the coming months given the slowdown there.

"We remain cautious on our outlook," Banga said in a conference call with analysts to discuss earnings.

The Purchase, N.Y.-based payments processor earned $700 million, or $5.55 per share, in the second quarter. That's up from $608 million or $4.76 per share a year ago.

Excluding a litigation charge, MasterCard earned $713 million or $5.65 a share, more than the $5.57 per share Wall Street analysts were expecting.

MasterCard took the $13 million charge to cover legal costs. Last month, MasterCard, Visa and a group of major banks announced a settlement with stores over transaction fees. MasterCard, which had set aside a large amount last year to cover legal costs, will pay $790 million as part of that settlement.

Purchase volume, the amount people spent on debit and credit cards with MasterCard logos, rose 13 percent worldwide. That was slower than the 17 percent recorded in the first quarter.

MasterCard increased rebates and incentives to both new customers and those that were renewing agreements. These kinds of incentives are common practice in the credit card industry, but they are a concern to Wall Street analysts because they can weaken future results for credit card companies.

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