For Visa Inc. (V.N), it’s government shutdowns, tariff talks and Brexit fears -- oh my.

The payment network’s shares dropped in late trading on Wednesday after it warned that consumer spending could be crimped in the first three months of the year. It pointed to the prospect of another U.S. government shutdown, a looming U.S. deadline to reach a trade deal with China and the U.K’s planned exit from the European Union.

“Some caution is called for, given the many unresolved issues that are coming to a head” in Visa’s fiscal second quarter, Chief Financial Officer Vasant Prabhu told analysts on a conference call. “There could be some volatility as we navigate through these complex issues and the uncertainty they create for businesses and consumers.”

Key Insights

• Customer spending on Visa cards fell short of some expectations. It amounted to US$2.2 trillion in the three months ended Dec. 31, the company’s fiscal first quarter -- below the US$2.27 trillion analysts at Sandler O’Neill & Partners anticipated. Visa stuck by its targets for revenue growth this year.
• The 3 per cent increase in cross-border payments was the smallest uptick in at least five quarters. Prabhu said U.S. inbound commerce has declined on “particularly soft” spending by consumers outside the country. A stronger U.S. dollar hinders the payment network’s profits abroad as it crimps overseas spending. The dollar strengthened for a third quarter, the longest such stretch since 2015, according to data compiled by Bloomberg.
• Visa spent US$1.46 billion on client incentives paid to banks and retailers to encourage spending on its network. That was below the US$1.52 billion average of analyst estimates compiled by Bloomberg. Visa still expects incentives to be about 22 per cent to 23 per cent of revenue this year, the firm said.
• Visa said it still expects revenue to grow by a per centage in the “low double” digits, while expenses should drop by a per centage in the “mid-single” digits. Its board authorized a new US$8.5 billion share buyback program.

What Our Analysts Say...

Incentive costs should remain elevated in fiscal 2019 due to new contracts with European banks and other global partners.-- David Ritter, Senior Industry Analyst, Bloomberg IntelligenceFor more, read the full note.

Market Reaction

Visa shares dropped 3 per cent to US$133.50 at 6:01 p.m. in late trading in New York. They had climbed 4.3 per cent this year through the close of trading on Wednesday.

Visa said profit in the quarter rose 18 per cent to US$3 billion, or US$1.30 a share, topping the US$1.25 average of analyst estimates compiled by Bloomberg.