Mastercard Results Beat Estimates as Consumers Boost Spending -- 3rd Update

Mastercard Inc. reported stronger-than-expected earnings and revenue for the second quarter as consumers boosted their spending.

Mastercard CEO Ajay Banga said on the company's earnings call that Kroger, the largest traditional grocery chain in the U.S. by sales, will be converting its co-brand credit card program to the Mastercard network. That is a switch from the Visa Inc. network that the cards have been running on. Mr. Banga said the issuer remains U.S. Bank. The card program will launch by the end of 2017, with new cards to be issued by spring 2018.

Profit for the second quarter increased 20% to $1.18 billion, or $1.10 a share, from $983 million, or 89 cents a share, a year earlier. Analysts polled by Thomson Reuters expected profit of $1.1 billion and earnings per share of $1.04.

Mastercard shares edged down 0.9%. The stock closed Wednesday at a record high of $130.99.

Net revenue increased 13% to $3.1 billion from a year prior, also beating analysts' estimates. That was fueled by an ongoing rise in gross dollar volume transactions occurring on the Mastercard network, which increased 6% worldwide to $1.28 trillion in the second quarter from the year prior. Mastercard, like Visa, is a major network on which credit card and debit card transactions are processed.

The company also benefited from an increase in cardholders using Mastercard cards outside of the country they are issued in. Those "cross-border" volume fees increased 14% from a year prior to $984 million. Also up are the number of transactions occurring on its network rather than on domestic networks in foreign markets. Those "switched transactions" increased 17% from a year prior.

Mr. Banga said Mastercard is finalizing its latest application to enter the Chinese domestic market. The company is reviewing several options including filing a sole application or pursuing a "joint venture" with another company. "What's really important here is to get it right out of the gate," he said.

Visa's CEO Al Kelly said last week that the company filed an application with the People's Bank of China for a domestic license. The U.S. and Chinese governments reached an agreement in May that is supposed to result in more access to the Chinese economy for electronic-payments providers. That reignited hopes that Visa and Mastercard may get more market share in China.

The companies are benefiting from a booming card market as more consumers switch to using cards or paying with phones that are linked to cards. The rise in online shopping also helps card companies.

In the U.S., credit card spending and debt is on the rise, fueled in part by the ongoing rewards wars as issuers offer more in points and cash back to consumers.

Operating expenses continued to rise as the company pays out more in advertising and marketing and shares in more costs with card issuers on rewards programs. They increased 7% from a year prior, but when excluding litigation costs that the company incurred a year prior, total adjusted operating expenses increased 17% on a currency-neutral basis.

Write to AnnaMaria Andriotis at annamaria.andriotis@wsj.com

(END) Dow Jones Newswires

July 27, 2017 10:30 ET (14:30 GMT)