By Maximilian Clarke

MasterCard Incorporated (NYSE: MA) has boosted net income by nearly 40%, to $717m, and earnings per diluted share of $5.63- up 42.9%.

Net revenue for the third quarter of 2011 was $1.8 billion, a 27.3% increase versus the same period in 2010. On a constant currency basis, net revenue increased 23.8%. Net revenue growth was primarily driven by the impact of the following:

An 18.1% increase in gross dollar volume on a local currency basis, to $844 billion;
An increase in cross-border volumes of 19.3%; and
An increase in processed transactions of 20.5%.

These factors were partially offset by an increase in rebates and incentives primarily due to increased volumes and new and renewed customer agreements.

Worldwide purchase volume during the quarter was up 17.2% on a local currency basis versus the third quarter of 2010, to $628 billion. As of September 30, 2011, the company’s customers had issued 1.7 billion MasterCard and Maestro-branded cards.

“We are pleased with our strong results this quarter, which were driven by several factors including double-digit increases in volumes and processed transactions in most regions across the globe,” said Ajay Banga, MasterCard president and chief executive officer. “Debit portfolio conversions in the U.S. and new transaction processing in Brazil and the Netherlands continue to contribute to this growth.

“Economic indicators across the world remain mixed, with the uncertainties in Europe and the United States weighing on sentiment and dominating headlines. Nonetheless, we continue to focus on displacing cash and winning share across markets. We will be adding to our domestic processing in Italy as we have signed a multi-year agreement with a major bank to convert their debit cards to Maestro-only from a co-brand with a domestic scheme. In the U.S., Huntington Bank recently announced a conversion to MasterCard debit cards and will be implementing our IPS platform. We also continue to work with governments around the world, most recently in India and Mexico, to replace some of their paper-based, manual procurement systems with MasterCard commercial products.”

Total operating expenses increased 23.1%, to $816 million, during the third quarter of 2011 compared to the same period in 2010. Excluding currency fluctuations, operating expenses were up 20.8%. The increase in total operating expenses was driven by:

An increase in general and administrative expenses of 27.3%, or 25.2% on a constant currency basis, primarily due to expenses related to strategic initiatives and the inclusion of acquisitions;
An increase in advertising and marketing of 9.8%, or 6.8% on a constant currency basis, driven by sponsorships and promotional initiatives; and
An increase in depreciation and amortization of 38.9%, or 37.6% on a constant currency basis, primarily due to the amortization of intangible assets from our recent acquisitions and continued investments in technology.

In the third quarter of 2011, excluding acquisitions, net revenue grew approximately 24% and operating expenses grew approximately 15%.

Operating income increased 30.9%, or 26.3% on a constant currency basis, over the year-ago quarter. Operating margin was 55.1%, up from 53.6% in the third quarter of 2010.

MasterCard reported other income of $28 million in the third quarter of 2011 versus other income of $1 million in the third quarter of 2010. The increase was mainly driven by realized gains on sales of investments, an adjustment to acquisition-related provisions and a decrease in the interest accretion on litigation settlements.

MasterCard’s effective tax rate was 30.5% in the third quarter of 2011, versus a rate of 32.3% in the comparable period in 2010. This decrease was primarily due to a more favorable geographic mix of earnings in the third quarter of 2011.

During the third quarter of 2011, MasterCard repurchased 250,100 shares at a cost of approximately $77 million. Quarter-to-date through October 27, the company repurchased an additional 10,900 shares of class A common stock at a cost of approximately $3 million, with $879 million remaining under the current repurchase program authorization.