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Discover Financial (DFS) Q4 Earnings Lag Estimates, Up Y/Y

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Discover Financial Services’ (DFS - Free Report) fourth-quarter 2018 adjusted earnings of $2.03 per share missed the Zacks Consensus Estimate by nearly 3%. However, the bottom line improved 31% year over year on higher revenues and solid loan growth.

Operational Update

For the reported quarter, revenues, net of interest expenses, increased 7% year over year to $2.8 billion, driven by higher net interest incomes, loan fee income and the company’s other total income. However, the top line lagged the Zacks Consensus Estimate by 0.1%.

Total loans grew 7% year over year to $90.5 billion.

Interest expenses of $605 million surged 38.8% year over year.

Total other expenses rose 7.1% to $1.11 billion due to higher employee compensation and benefits plus other expenses.


Segment Update

Direct Banking Segment

This segment’s pre-tax income inched up 0.5% to $874 million owing to increase in net interest income. However, the same was largely offset by a rise in provision for loan losses and operating expenses.

Total loans climbed 7% year over year to $90.5 billion. Credit card loans augmented 8% to $72.9 billion.

Personal loans ascended 1%. Private student loans rose 2% and shot up 9% excluding purchased student loans, all on a year-over-year basis.

Net interest income increased 9% year over year, driven by loan growth and net interest margin expansion. Net interest margin was 10.35%, up 7 basis points from the year-ago quarter.

Payment Services Segment

Payment Services pre-tax income was $23 million, down 20.7% from the year-earlier period, mainly due to growth-related expenditure.

Payment Services transaction dollar volume was $60.5 billion, up 12% from the prior-year period.

PULSE transaction dollar volume expanded 11% year over year, driven by the impact of new issuers on the network and strong growth from existing issuers.

Diners Club volume grew 5% from the year-earlier quarter, banking on consistent newer franchise relationships.

Network Partners volume expanded 43%, backed by AribaPay.

Strong Financial Position

Discover Financial had total assets worth $109.5 billion as of Dec 31, 2018, up 9.5% year over year.

Total liabilities as of Dec 31, 2018 were $98.4 billion, up 10.3% year over year.

Total equity was $11.1 billion on Dec 31, 2018, up 2.2% year over year.

Discover Financial’s return on equity for the fourth quarter was 25%.

Share Repurchase Update

During the quarter under review, the company repurchased approximately 6.7 million shares of common stock for $466 million.

Shares of common stock outstanding dipped 2.1% from the previously reported quarter’s tally.

Zacks Rank

Discover Financial carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Peer Releases From Finance Sector

W.R. Berkley Corp. (WRB - Free Report) is set to release fourth-quarter earnings on Jan 29 and the consensus mark for the same stands at 76 cents per share, in line with the year-ago period’s figure. The stock has a Zacks Rank of 3.

Cboe Global Markets, Inc. (CBOE - Free Report) is scheduled to report fourth-quarter earnings on Feb 2. The Zacks Consensus Estimate for the same is pegged at $1.35, reflecting a year-over-year rise of 55.2%. The stock carries a Zacks Rank #2 (Buy).

Brown & Brown, Inc. (BRO - Free Report) is slated to announce fourth-quarter earnings on Jan 28. The consensus estimate for earnings is 27 cents, up from 25 cents in the prior-year quarter. The stock holds a Zacks Rank of 2.

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