Tags: Discover | Profit | Card | Spending

Discover Profit Beats Estimates as Card Spending Increases

Tuesday, 23 Jul 2013 06:08 PM

Discover Financial Services, operator of the fourth-biggest U.S. bank-card network, reported a second-quarter profit that beat analysts’ estimates as customer spending increased.

Net income rose 15 percent to $602 million, or $1.20 a share, from $525 million, or 99 cents, in the same period a year earlier, the Riverwoods, Illinois-based company said Tuesday in a statement. The average estimate of 23 analysts surveyed by Bloomberg was $1.15 a share.

Discover is boosting dividends and repurchasing shares as Chief Executive Officer David Nelms wrings value from the firm’s global network, striking payment-processing partnerships with EBay Inc.’s PayPal and SAP AG’s Ariba.

“Discover’s strong overall results were driven by profitable growth in direct banking and continued improvement in credit,” Nelms, 52, said in the statement.

Credit-card write-offs fell 2 basis points from the previous quarter to 2.34 percent as loans at least 30 days overdue dropped to a record low 1.58 percent, according to the statement. Defaults on securitized loans averaged 1.12 percent in the quarter, the lowest among the six biggest U.S. issuers, according to data compiled by Bloomberg.

Discover climbed 4 cents to $50.75 at 4:40 p.m. in extended trading. The shares gained 32 percent this year through the close of regular trading, outpacing the 27 percent advance for the 81-company Standard & Poor’s 500 Financials Index.

Card Purchases

Revenue rose 9.4 percent to $2.04 billion in the second quarter from a year earlier, beating the $2.03 average estimate of analysts in the Bloomberg survey. Discover card purchases increased 4.4 percent to $27.6 billion and card loans rose 4.8 percent to $49.8 billion. Net interest income increased 8.8 percent $1.43 billion.

Nelms has acquired mortgage and student-lending businesses as he seeks to make Discover less reliant on credit cards, which provide most of the firm’s revenue. Private student loans increased 5.4 percent in the second quarter to $7.93 billion. Personal loans climbed more than 20 percent to $3.51 billion.

Net interest margin, the difference between what a bank pays in deposits and charges for loans, increased 16 basis points to 9.44 percent from a year earlier, Discover said. A basis point is 0.01 percentage point.

The lender’s payment-services unit posted a $21 million pretax loss as expenses jumped from a year earlier, including $55 million of costs tied to supporting Diners Club International franchises, according to the statement. Discover said last month that profit would be reduced because it had to acquire some businesses in Europe and regulators revoked the license of the Diners Club franchise in Slovenia.

Discover repurchased $340 million of shares in the quarter. The quarterly dividend increased 43 percent to 20 cents in May and has doubled since last year.charper@bloomberg.net; David Scheer at dscheer@bloomberg.net

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Discover Financial Services, operator of the fourth-biggest U.S. bank-card network, reported a second-quarter profit that beat analysts' estimates as customer spending increased.
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2013-08-23
Tuesday, 23 Jul 2013 06:08 PM
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