DFS Discover Financial Services

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)

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