Visa, MasterCard and the Power of Plastic

By Nate Matherson of Circa Alpha

NEW YORK (TheStreet) -- I just want to say one word to you: plastics. As in American Express (AXP), Discover Financial Services (DFS), Visa (V) and MasterCard (MA).

As we progress through yet another earnings season I want to look at the earnings in one of my favorite industries, payment processing and card services. This sector gives us a unique insight into both the financial and consumer discretionary sectors, which may be on the rise.

Over the last couple weeks. all of four companies have reported earnings. In this article I would like to review some key pieces from each of these reports while offering company-specific and industry analysis.

American Express reported 2013 operating earnings per share of $1.25, comfortably surpassing both the consensus estimate of $1.22 and the year-ago quarter's $1.09 a share. Global card spending bolstered the company's net income from operations by 9% year over year to $1.37 billion, from $1.25 billion in the third quarter of last year. Card spending rose by 7% year over year to $236.2 billion a result of international cards-in-force gains of 7% and cards-in-use gains of 8% in the United States.

American Express registered 6% growth on the top line as due to strong growth in card spending, gains in net interest income and the loan portfolio portfolio. Delinquency rates stabilized while provisions for losses were $492 million, up 3% from $479 million in the third quarter of last year. Total expenses increased 5% year over year to $5.81 billion in the reported quarter as expense related to the company's famed card member rewards program rose 8%. Expenses related to professional services jumped by 15%.

I want to focus on the 43% net income gains seen within the Global Commercial Services revenue segment. Higher spending by corporate card members and growth in business travel commissions and fees allowed the company to bolster revenue. Improving revenue from the company's business customer signals, I hope, a turnaround in corporate spending, a key revenue segment for many companies across a number of sectors. Moreover, higher corporate spending signals higher corporate confidence meaning stronger perceived economic strength.

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