• by Tanya Gazdik , May 3, 2009

Purchase, N.Y.-based MasterCard Inc. said Friday that its first-quarter profit fell 18% from the year-ago period, but earnings still topped analysts' expectations. Despite some overall pessimism about the world economic climate, the company's CEO said marketing expenditures should head back up.

To counter the revenue slowdown in the first quarter, the company had reduced costs by 10.8%, including more than a 35% reduction in advertising and marketing spending. Rival American Express cut its spending by over 40% and Visa's was down 9% for the quarter. "We would expect that this (the 35% reduction) would be a low point for the year, this first quarter, and that we would see a significant growth in marketing spending moving through the rest of the year," said Robert Selander, MasterCard's president and CEO, during a conference call.

"Now, if we don't see that recovery happening, then that would clearly temper and cause us to rethink whether or not we want to make those investments or not," Selander continued. "And many of those are being done with customers, to the extent customers say: 'No, I don't want to do a particular promotion,' then obviously we're not going to do that. But right now, there is a level of expectation on our part that as things get better, we will be increasing our marketing spend."

Selander said the company has benefited from reductions in the costs. "So we get -- we're getting -- more bang for our buck," he said.

Unlike credit card issuers, MasterCard does not lend to consumers and makes money from fees charged to banks to process card payments. The more times consumers use MasterCard-branded cards, and the more they charge on them, the more the company earns by way of fees. But as the economic slump deepens, slower consumer spending eats into the fees. As of March 31, MasterCard had 967 million branded cards outstanding, a 4% rise from a year earlier.

Net income for the quarter ended March 31 fell to $367.3 million, or $2.80 per share. MasterCard earned $446.9 million, or $3.37 per share, during the same quarter last year. MasterCard has said it would need high-single-digit revenue growth coupled with flat expenses to hit its long-range profit growth target.

"Our volumes have been impacted by significant headwinds, such as slower cross-border travel, lower gas prices, and an appreciating dollar," Selander said. In the U.S., purchase volume fell 7% to $192 billion.