Discover Financial's (DFS) quarterly profit rose 2.8% to $616 million as lending increased during the spring and shoppers pushed up credit card balances.
Excluding a $44 million tax benefit that boosted profit by 11 cents, Discover earned $1.36 a share, trailing the average estimate of $1.38 from analysts surveyed byBloomberg. Revenue increased almost 2% to $2.22 billion, the Riverwoods, Illinois-based company said in a statement.
"We achieved loan growth within our target range and delivered strong profitability," said CEO David Nelms. Lending increased 4% from last year to $71.9 billion, the credit card company said, while credit card balances rose by the same amount to $57.2 billion.
The cost of rewards programs designed to buoy spending increased 18% to $371 million, which would have dragged net income lower without the tax benefit, said Erik Oja, an analyst with S&P Global.
"I see it as a little bit of a miss," Oja said in a phone interview. "It's a very competitive environment and all the card companies are definitely having to enhance their rewards costs."
BMO Capital, which has a "market perform," rating on Discover, with a target price of $63, is content with consumer credit quality and said the firm should "grow loans at a faster pace."
Discover, American Express (AXP) , Ally Financial (ALLY) , and Capital One (COF) were among 30 bank holding companies with more than $50 billion in assets that passed the Federal Reserve's 2016 annual review, the regulator said last month.
That enabled Discover to boost its quarterly dividend 7.1% to 30 cents a share and initiate a $2.5 billion share repurchase program, generating "one of the highest total yields" among finance companies that require Fed approval for such spending, Nelms said.
The company's shares dropped 0.82% in $56.51 in after-hours trading Tuesday, paring gains to about 6% this year, in line with the broader S&P 500.
By: Valerie Young (The Street).
Photo: Yahoo.
Review: Emerging Market Formulations & Research Unit, FLAGSHIP RECORDS.
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