Earnings

Discover Misses In Q1

Shares of Discover Financial Services (DFS) slid about 5 percent in after-hours trading after the release of the company’s Q1 earnings report, though they have since recovered somewhat.

Discover reported net income in the first quarter of 2017 at $564 million, or $1.43 per share.

An average estimate of 10 analysts surveyed by Zacks Investment Research expected some $1.42 per share, meaning Discover beat for the quarter.

But it depends on who you ask.

Reuters pegged the view at $1.46, and Seeking Alpha reported the earnings a miss. These figures more so align with the market reaction — so, erring on the side of caution, we’re calling it a miss.

On the revenue end, Discover posted $2.73 billion for the period, with adjusted revenue at $2.34 billion. For Q1, the company reported a return on equity of 20 percent. Consumer deposits hit $37.1 billion for the quarter, up 13 percent year over year (YoY).

Total loans were up 8 percent YoY to $75.9 billion. Credit cards loans comprised the majority, up 7 percent to $59.8 billion. Personal loans were up 20 percent, and private student loans increased 3 percent, both YoY.

“We achieved strong sales and loan growth as consumers responded well to our strategic initiatives, which were augmented by higher industry growth,” said David Nelms, chairman and CEO of Discover. “The credit environment remains favorable relative to historical norms. The increase in provisions is the anticipated result of recent loan growth seasoning.”

In its Direct Banking segment, Discover reported pre-tax income fell 7 percent to $824 million year over year.

The company’s higher provision for loan losses — up 40 percent year over year to $594 million for the quarter, due to higher net charge-offs, which hit 2.84 percent in Q1 — and “other” income down 8 percent, driven by higher promotional rewards, worked to cancel out 8 percent gains in net interest income.

The delinquency rate for credit card loans over 30 days past due was 2.06 percent for the quarter, up 38 basis points year over year and two basis points from Q4 2016.

Discover saw some more positive movement in its payment services segment.

For the quarter, the company reported a rise in payment services pretax income, up 37.5 percent YoY to $44 million. Likewise, Payment Services transaction volume hit $47.1 billion, up 5 percent over Q1 2016.

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