Visa Beats Estimates as Consumer Spending Grows, PayPal Feud Ends

Visa generated higher profit than Wall Street expected in the past three months and reached an agreement resolving a feud with rival PayPal. The company forecast revenue growth of 8%.
By Valerie Young ,

Pending litigation, Brexit concerns, and the strong dollar didn't stop Visa (V) - Get Report from beating Wall Street's quarterly profit estimates, or from introducing a $5 billion stock-buyback plan.

Visa's adjusted earnings of 69 cents a share for the three months through June, its fiscal third quarter, compared with the 67-cent average of analysts' estimates in a Bloomberg survey.

Net income, including one-time charges related to the company's purchase of former subsidiary Visa Europe, fell 76% to $412 million. Operating revenue climbed 3% to $3.6 billion, in line with analysts' estimates, as cardholder spending climbed 10% to $1.3 trillion.

"While little has changed in the global economic environment, and cross-border commerce continues to be challenged by a strong U.S. dollar, domestic consumer spend across the globe remains strong and resilient," Visa CEO Charlie Scharf said in a statement.

After completing the Visa Europe acquisition in late June, the company has a total of 3 billion cards globally. It services about 40 million merchant outlets and 17,100 financial institutions.

Rival PayPal (PYPL) - Get Report , which also reported earnings that beat estimates on Thursday, announced that it had resolved a simmering feud with Visa by agreeing not to encourage customers to link their PayPal accounts to checking accounts rather than Visa cards. The two companies also agreed to share data across networks, and enhance security measures. 

"This agreement opens new avenues for PayPal to collaborate with Visa, financial institutions, and others in the payments ecosystem to deliver greater value, more choice, and new experiences for our joint customers," PayPal CEO Dan Schulman said in a statement

VisaNet, the San Francisco company's online consumer processing system, handled $19.8 billion in transactions during the quarter, up 10% from the prior year as the credit card industry moves increasingly into digital channels.

Visa said it expects revenue growth of 7% to 8% for the full year, a figure that includes branded-card agreements with warehouse retailer Costco (COST) - Get Report and USAA, which provides financial services for military personnel and their families.

Visa gained access to Costco's branded card portfolio after the store ended a 16-year relationship with American Express (AXP) - Get Report  , moving to New York-based lender Citigroup (C) - Get Report. The portfolio comprises 7 million Costco shoppers who spent about $76 billion on their AmEx cards last year.

Challenges are looming for both the card processor and rival MasterCard, however. The shares of both companies declined last month after a U.S. appeals court overturned an antitrust settlement of $7.25 billion, opening the door for potentially higher damages. The companies are simultaneously facing legal claims from retailers such as Walmart (WMT) - Get Report   and Home Depot (HD) - Get Report .

"The largest risk to Visa is the potential that debit interchange legislation takes hold in international markets or that restrictions move to credit interchange fees," Josh Olson, an Edward Jones analyst, said in a note to clients. "Other risks include economic sensitivity to consumer spending and disruptive payment technologies."

Visa fell 0.4% to $78.50 after the close of regular trading in New York. The shares previously rose 1.6% this year, trailing the broader S&P 500.

EXCLUSIVE LOOK INSIDE: Visa, Costco, PayPal and Citigroup are holdings in Jim Cramer's Action Alerts PLUS charitable trust portfolio. Want to be alerted before he buys or sells the stocks? Learn more now.

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