Eye on Earnings: MasterCard, Heartland, Online Resources

The flow of third-quarter earnings reports from payments companies continued this week with MasterCard Inc. reporting a hefty increase in transaction volume, revenues, and profits, while fast-growing merchant acquirer Heartland Payment Systems Inc. weighed in with a 20% increase in processing volume. And the chief executive of bill-payment processor Online Resources Corp., which scaled back its 2008 outlook and saw its stock crater after the company failed to meet analysts' expectations, took the unusual step of declaring he would buy shares of what called his “significantly undervalued” company. ? MasterCard, the No. 2 payment network, said its global transaction volume increased 13.3% over 2006's third quarter to 4.8 billion. In the U.S., debit cards again far outpaced credit cards in growth. Purchase, N.Y.-based MasterCard said debit purchase volume was $66 billion in the third quarter, up 14.7% on a local currency basis from $58 billion in 2006's third quarter. Those numbers compare with $139 billion for U.S. credit and charge card purchases, up 7.1% from $129 billion in the year-earlier period. U.S. debit cards racked up 1.62 billion purchases, up 17.3% from 1.39 billion in the 2006 quarter, compared with 1.6 billon purchases on U.S. credit and charge cards, up 6.4% from 1.51 billion. MasterCard's debit cards in issue rose 16.1% to 108 million while the credit and charge card count rose 5% to 274 million. The network reported 7 million U.S. acceptance locations as of Sept. 30 and 25.9 million worldwide. It was another good quarter financially for MasterCard, too. Net income of $314.5 million was up 63% from $193 million in 2006's third quarter, on revenues of $1.08 billion, an increase of 20% over the earlier period's $902 million. ? Princeton, N.J.-based Heartland Payment Systems reported charge volume increased by 20% in the third quarter to $14.1 billion from $11.7 billion a year earlier and its active merchant count grew 19% to 158,000. Some 86% of new merchants and 76% of total transactions are now on Heartland's proprietary processing platform, HPS Exchange, chairman and chief executive Robert Carr reported. Heartland reported quarterly net income of $11.8 million, up 16% from $10.1 million in 2006's third quarter, on revenues of $354.6 million, an increase of nearly 21% from $293.3 million a year earlier. The company also announced that it had promoted chief financial officer Robert Baldwin to president and CFO. Baldwin, chief financial officer since 2000, oversaw Heartland's initial public stock offering in 2005. Heartland also promoted Alan Sims, who joined the company in 2000, to chief technology officer; and named Marty Moretti to the new position of chief service officer. Moretti will oversee Heartland's service center in Jeffersonville, Ind. ? Chantilly, Va.-based Online Resources reported after the market closed on Thursday, Oct. 25, when its shares closed at $12.29, that it had swung to a $1.1 million profit in the third quarter from a loss of $3.1 million a year earlier, and revenues grew 21% to $34.2 million. But earnings per share fell short of Wall Street expectations, and the company also moderated its 2008 growth expectations. Investors began to fear that Online Resources was cutting prices in pursuit of big customers, according to reports on the financial wires. That Friday, Online Resources' stock plunged nearly 31% and it lost another 8% on Monday to close at $7.86. On Tuesday afternoon, chairman and chief executive Matthew P. Lawlor released what he called an “open letter to shareholders and other stakeholders.” Referring to the moderated 2008 outlook, he wrote “It has been particularly painful to watch committed, long-term investors (including myself) see the value of their investment in Online Resources plummet in response to this news.” After noting that he still projects revenues, pre-tax income, and core earnings per share all to grow 20% or more next year and that Online Resources “is a better investment than ever before,” Lawlor announced his intention to begin buying shares Nov. 1. His buys would start with a likely purchase of 10,000 shares “at a price level consistent with yesterday's close,” he said. The letter apparently produced its intended effect. The stock closed up 11.5% that day and added almost 6% on Wednesday to close at $9.25. On Thursday it fell 1.5% in a big market downdraft.