Discover Profit Beats Estimates as Consumer Write-Offs Ease

Apr 22, 2014 5:07 pm ET

(Updates with CEO comment, revenue starting in the fourth paragraph.)

April 22 (Bloomberg) -- Discover Financial Services, the credit-card lender that boosted dividends after passing U.S. stress tests, posted a profit that beat analysts’ estimates as more customers kept up with their bills.

First-quarter net income slipped 6.2 percent to $631 million, or $1.31 a diluted share, from $673 million, or $1.33, a year earlier, the Riverwoods, Illinois-based company said today in a statement. The average estimate of 25 analysts surveyed by Bloomberg, excluding some items, was $1.25 a share.

Chief Executive Officer David Nelms, 53, is benefiting from improving credit scores as the economy strengthens. The quarter included increases in net revenue, total loans and card spending volume, the company said.

“We delivered strong card loan growth that was near the top of our targeted range while maintaining excellent credit performance and continuing to grow other lending products,” Nelms said in the statement.

Revenue net of interest expense rose 4.3 percent to $2.1 billion. Purchase volume expanded 4 percent to $50.8 billion and spending on Discover’s Pulse debit network increased 5 percent. The firm set aside more money to cover loan losses and expenses increased 3 percent.

Shares React

Shares of Discover decreased 1.5 percent to $55.90 at 5:05 p.m. in New York. The stock climbed 1.3 percent this year through the close of regular trading, compared with a 0.6 percent advance for the Standard & Poor’s 500 Financials Index.

Discover previously set plans to boost its dividend 20 percent to 24 cents a share and said it would repurchase as much as $3.2 billion of shares through April 15, 2016, after passing annual stress tests administered by the Federal Reserve.

Discover “is decidedly the ‘no-brainer’ to own in the card space,” Daniel Furtado, an analyst at Jefferies Group LLC, said in an April 8 note with a buy rating on the lender’s stock. “The shares will continue to work as the company continues to show strong card balance growth with conservative underwriting.”

Card issuers including Discover are getting a lift as more consumers pay on time. Write-offs at Discover fell to 2.3 percent in March from 2.5 percent in February and loans at least 30 days overdue dropped to 1.7 percent from 1.8 percent

American Express Co., the biggest credit-card issuer by customer spending, said April 16 that net income increased 12 percent to $1.43 billion as card purchases climbed and expenses fell. Capital One Financial Corp., the McLean, Virginia-based bank that gets more than half its revenue from credit cards, said first-quarter profit rose 9.3 percent to $1.15 billion.