DFS Discover Financial Services

TAKING THE PULSE: Higher holiday sales and increased card use are expected to help credit-card companies post growth in revenue and earnings for the most recent quarter. Discover Financial Services (DFS), which reports on its own fiscal calendar, last month said its quarterly profit rose 47% as delinquencies and net charge-offs declined and its loan portfolio grew. That's a positive sign for American Express Co. (AXP), which lends to consumers as well as processes transactions, like Discover.

Higher card use is also positive for Visa Inc. (V) and MasterCard Inc. (MA), which don't lend to customers but generate fees from banks and merchants based on transaction volume. Both companies have been adjusting their businesses in response to new federal regulations that cap how much large banks can charge merchants when a customer swipes a debit card and requirements giving merchants more control over how their transactions are processed. Visa is responding by boosting financial incentives to retailers to convince them to continue routing transactions its way. MasterCard is trying to steal share by getting more banks to use it for debit processing.

COMPANIES TO WATCH:

American Express - Reports Jan. 19

Wall Street Expectations: Analysts surveyed by Thomson Reuters expect earnings of 98 cents a share on revenue, net of interest expense, of $7.92 billion. In the same period a year earlier, profit was 88 cents a share on $7.32 billion in revenue.

Key Issues: American Express, which lends to affluent customers, relies heavily on customers who use their cards frequently but generally pay their balances off in full each month. Despite the weak economy, the company has seen spending increase consistently over the last year. Billed business, or the amount spent on its cards, increased more than 15% in the third quarter from a year earlier to $207.7 billion. But American Express faces an onslaught of competition from other credit-card issuers who are targeting higher-income consumers with premium cards. And rewards-related costs have been increasing, raising questions over its ability to control expenses in the coming year.

Visa - Reporting date to be announced

Wall Street Expectations: Analysts anticipate $1.45 in earnings per share on revenue of $2.47 billion. A year earlier, it reported $1.23 a share and $2.24 billion, respectively.

Key Issues: Visa's profit rose 14% in the last quarter as the number and value of transactions it processed increased. But increases in incentive payments to merchants caught some investors off guard. The payments are meant to mitigate new rules that prohibit exclusive processing arrangements with its bank partners, which should give merchants more control over how their transactions are processed. Investors will also be looking for details on pending litigation Visa, MasterCard and several of their bank partners face from merchants accusing the companies of price fixing. Visa recently added $1.6 billion to a litigation escrow set up to cover a potential settlement of the lawsuits and other litigation.

MasterCard - Reports Feb. 2

Wall Street Expectations: Analysts predict earnings will rise to $3.96 from $3.16 a share and revenue will increase to $1.73 billion from $1.44 billion.

Key Issues: As the smaller player in the debit-processing market, MasterCard has more opportunity to steal market share from Visa as a result of the new debit-card rules, analysts say. But it, like Visa, may shell out incentives to merchants to secure transaction volume over its network. Executives said last quarter that the company plans to take a "surgical" approach to such payments, targeting specific merchants rather than a blanket approach. MasterCard, which generates about 60% of its revenue from foreign markets, said spending trends remained strong in the third quarter, with no signs of a slow-down in Europe.

-By Andrew R. Johnson, Dow Jones Newswires; 212-416-3214; andrew.r.johnson@dowjones.com

-Joan E. Solsman contributed to this report.

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