Discover Financial Profit Misses Expectations -- Update
28 Gennaio 2016 - 1:55AM
Dow Jones News
By Robin Sidel and Chelsey Dulaney
Discover Financial Services Inc. on Wednesday posted
weaker-than-expected profit growth in its fourth quarter due to
disappointing results from its core credit-card business.
Chief Executive David Nelms vowed to propel credit-card loan
growth in 2016, with a target to expand the company's total loans
by 4% to 6%. Much of that growth likely will need to come from
credit cards, which represent 80% of the company's loan
portfolio.
"Looking forward, we do have significant urgency in accelerating
growth, " Mr. Nelms told analysts in a conference call.
Riverwoods, Ill.-based Discover said it posted strong student-
and personal-loan originations in the quarter, but credit-card loan
growth was at the low end of its target.
The company said credit-card loans expanded 3.1% to $57.9
billion in the fourth quarter. It attributed the disappointing
growth to slower retail sales and lower gas prices, among other
factors. Gasoline purchases now represent 5% to 6% of Discover's
purchase volume, down from about 10% a year ago, Mr. Nelms said in
an interview.
The company also backed away from some of its balance-transfer
promotions in the fourth quarter and reduced the duration in which
customers don't have to pay interest on their transferred
balances.
Mr. Nelms said most of the growth efforts would focus on prime
borrowers even as the company launched a secured credit card
earlier this week. Secured credit cards are aimed at riskier
borrowers and require a security deposit as collateral against
future borrowing.
Shares fell 2.2% to $47.64 a share in after-hours trading.
In all, the company earned $500 million, up from $404 million in
the year-earlier period. On a per-share basis, earnings rose to
$1.14 a share from 87 cents a share. But analysts polled by Thomson
Reuters had projected earnings of $1.30 a share.
Like American Express Co., Discover both issues credit cards and
operates its own payment network. In addition, Discover has been
expanding aggressively in other loan products, such as student and
personal loans.
Total loans rose 3.5% to $72.4 billion. Personal loans rose 9.6%
and private student loans increased 16% excluding purchased
loans.
Revenue net of interest expense edged up to $2.21 billion from
$2.04 billion. Analysts had projected revenue of $2.22 billion.
Discover's debit-card network, called PULSE, continued to
struggle in line with recent trends. Volume was down 14% compared
with the year-earlier period due to the loss of a large debit
issuer.
Write to Robin Sidel at robin.sidel@wsj.com and Chelsey Dulaney
at Chelsey.Dulaney@wsj.com
(END) Dow Jones Newswires
January 27, 2016 19:40 ET (00:40 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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