Healthy consumer spending drives Mastercard's (MA.US) Q3 profit above expectations

Mastercard (MA.US) reported better-than-expected third-quarter earnings on Thursday as consumers, encouraged by economic stability, increased their spending.

The report capped a busy earnings week for the payment industry, which is being closely watched to assess the health of US consumers.

Spending levels are still high compared with a year ago, despite some companies signaling a slowdown, as wage growth and hopes for a soft landing have boosted consumer confidence.

Mastercard's profit grew 2% to $3.3 billion in the three months ended Sept. 30. Revenue rose 13% to $7.4 billion. Adjusted earnings per share were $3.89, topping the $3.74 expected by analysts.

The trend so far also suggests a more resilient diversified business, including value-added services such as credit cards, mobile payments, peer-to-peer transactions and fraud protection.

Revenue from Mastercard's payment network grew 11%. Value-added services and solutions, which now account for 37% of Mastercard's total revenue, grew 19% year over year.

"These results reflect healthy consumer spending and continued strong demand for our value-added services and solutions," Chief Executive Michael Miebach said.

Spending in October was flat. Cross-border transactions, which track cardholders' spending outside the US, rose 18% year over year, a measure of travel demand.

Swap volume, which measures the value of transactions processed on the Mastercard network, also grew 11%.

As part of its plan to reorganise and focus on growth areas, Mastercard said it booked $190 million in pretax charges as part of a 3% global workforce reduction announced in August.

In June, a federal judge rejected a $30 billion settlement between Mastercard and Visa and US merchants, ending an attempt to resolve a long-running lawsuit over credit card swipe fees. Mastercard recorded $176 million in litigation reserves in the third quarter.

Mastercard's shares rose nearly 2% before the market opened on Thursday. The stock has gained 20% this year, outperforming rival Visa but lagging the S&P 500 index.