Earnings Preview: MasterCard to post 2Q results

Payment processing company MasterCard Inc. reports its second-quarter results before the market opens Tuesday.

WHAT TO WATCH FOR: MasterCard's results may reflect a drop in U.S. retail sales in May and June. But the impact of the sluggish pace of the U.S. economic recovery on the Purchase, N.Y.-based company's results will be mitigated by the fact that more than half the transactions MasterCard processes take place overseas.

Still, MasterCard's debit and credit card transaction volumes for the quarter will be closely watched for any indication they can offer of an uptick in consumer spending, a key portion of the economy.

MasterCard is more reliant on credit card use than its larger rival Visa, which reported 38 percent growth in operating earnings for the June quarter on Wednesday. Still, the stock has been weighed down by concerns over new regulations regarding the fees charged to merchants for accepting debit cards, part of the financial overhaul law signed last week by President Barack Obama. Shares closed Thursday at $208.37, down 19 percent since the start of the year.

It will be late 2011 before the Federal Reserve has written the rules to implement the law and the full impact of the new restrictions is clear.

Wall Street is suggesting the new rules won't be catastrophic. "We think even the worst-case scenario is quite manageable," wrote UBS analyst Jason Kupferberg. Nevertheless, investors will be listening for new CEO Ajay Banga to provide some hint of the strategies the company will use to address the expected effects.

WHY IT MATTERS: The shift among shoppers from cash to plastic for even small routine transactions makes the card processor's results a helpful indicator of consumer sentiment.

Growth in U.S. credit card use in particular could point to increased consumer confidence. In the past two years, credit use has dropped off and card holders have worked to pay down debt as unemployment rose.

WHAT'S EXPECTED: Analysts polled by Thomson Reuters expect the company to earn $3.33 per share, on revenue of $1.38 billion.

LAST YEAR'S QUARTER: MasterCard earned $349 million, or $2.67 per share, on revenue of $1.28 billion.

(This version CORRECTS the day of the report.)