The processed transaction data, as well as MasterCard Advisors Spending Cost Analysis, continues to show an increase in sales of necessary goods such as gasoline, food, and health care, largely due to increasing prices.
- The impact of higher inflation and lower housing prices are compounded by the fact that consumers are finding it increasingly difficult to obtain credit as financial institutions tighten their criteria for loans and credit extensions.
- There is continued double-digit growth in markets outside the U.S., which contributed a little more than half of revenues in the quarter.
- While there are economic downturns in the U.K., Spain, and a few other European countries, in general European markets continue to represent strong growth.
Cross-border volume growth continues to be primarily driven by Europeans traveling in Europe and overseas and there have not been any significant change in travel patterns on a year-over-year basis for any of the regions.
- Much of the growth is being driven by the secular shifts of electronic payments, which is somewhat independent of the cyclicality of current market conditions.
- It continues to collaborate with customers to help maximize the value of the payments businesses, recognizing that they are experiencing extraordinarily challenging conditions in the current economic environment.
- It is partnering with them as they refocus their efforts from account acquisition and marketing towards the maintenance of the existing business and areas such as broad-loss prevention.
Business Highlights:
- On Integrated Processing Solutions, OIPS, the firm is now in light production with its first customer, Security Service Federal Credit Union, having successfully completed the critical first stage of a multi-stage conversion and implementation program.
- The firm entered into a judgment-sharing agreement with Visa that the portions costs and liabilities both companies may incur in the event of either an adverse judgment or settlement of the case.
- This agreement provides that Visa would be responsible for the substantial majority of any judgment or settlement, based primarily on relevant volumes.
- In mid-June it announced that it would comply with the European Commission’s ruling by temporarily repealing the default intra-EEA cross-border consumer card interchange fees effective June 21, 2008.
Key questions and answers from the second quarter earnings call conducted by MasterCard Inc. (MA) on July 31, 2008.
Tien-Tsin Huang (J.P. Morgan):
Can you comment on monthly trends in general on U.S. purchase volume growth in the second quarter?
Martina Hund-Mejean: We saw during the quarter it came down a little bit in June. It was not a cabalistic decline. What we are seeing here, on average, for the second quarter, we are seeing as a trend, also, for July.
Tien-Tsin Huang (J.P. Morgan):
On G&A, did you quantify the higher severance costs and what kind of savings you expect to get out it?
Martina Hund-Mejean: We can certainly do that. If you just looked at the G&A expenses overall, you saw a 15.7% increase of which 3.3% were related to currency fluctuations, and then in terms of the severance, I can guide you that that was about 3% of that.
Tien-Tsin Huang (J.P. Morgan):
And the savings you expect out of that, going forward?
Martina Hund-Mejean: We do obviously expect some savings, otherwise we would not have done that. But it’s really realigning our work forces with the kind of business needs we’re seeing forward. Again, as you know, we are still investing in the business but we are also seeking to expand our operating margin.
Patrick M. Burton (Citigroup):
Comment on cross border travel?
Martina Hund-Mejean: What we have seen is that cross product growth has actually accelerated over the last year. In particular when you looked at the fourth quarter of last year and it had kind of continued into the first quarter of this year.
We are talking relatively still extremely healthy growth rates of almost 19%. We really have not seen any change in travel patterns. The travel patterns are really still pretty much the same from what we saw before.
We saw the Latin Americans maybe traveling a little bit more in Latin America versus coming to the United States. We really saw no discernable difference between what the Europeans do and what people in Asia/Pacific do.
Adam Frisch (UBS):
What can we expect from G&A going forward?
Martina Hund-Mejean: We are very mindful between the top line growth and what we have to do on the G&A perspective.
Despite that, we have some pretty good leverage to moderate any kind of impact, be it what happens in terms of a tiering perspective from our customer agreements, be it that more than half of our revenue growth is actually generated out of the United States and from a G&A perspective, again, we are pretty much reiterating what we had said before.
And when you put the numbers together, you should see some pretty healthy margin expansion. But you already saw for the first six months as well as the remaining six months of the year.
