Earnings Review: Discover’s Sluggish Momentum Continues
Discover Financial Services (NYSE: DFS) reported its earnings for the second quarter of the fiscal year 2016 on Tuesday, July 19th. The company reported a 10.5% year-over-year increase in earnings per share (EPS) to $ 1.46 on the back of a 1.9% increase in total revenue. Discover’s business revolves around its direct banking segment and its credit card services, which allow it multiple revenue streams including transaction fees, processing fees and merchant fees for accessing its payment network and identity protection services in addition to the interest income generated from outstanding credit card loans. The results were mostly inline with our pre-earnings expectations.
Given Discover’s run ins with regulatory authorities and weak consumer demand in the U.S., the growth in income from services built around its credit card business has been low. In the second quarter, revenue from all services except for interest income declined compared to last year. Discover Card Transaction and Execution Fees declined by over 10% year over year. The 1.9% increase in overall revenue was mostly a result of the 7% growth in interest income but this growth comes at the expense a 34.6% increase in provisions for loan losses. Consequently, pre-tax income declined by close to 5% year over year. A one time tax benefit of $44 million and $425 million spent on share repurchases boosted earnings per share to $1.46 from last year’s $1.33. This trend is consistent with the last five years in which Discover’s share buyback activity has propped up its EPS, even as core business segments decline. Excluding the impact of share buybacks, earnings per share rose by a modest 2.4%, largely the impact of the one-time tax benefit, which contributed $ 0.11 to the bottom line.
Have more questions about Discover? See the links below:
- How Much Did Discover’s Revenue & Net Profit Grow In The Last Five Years?
- How Much Can Discover’s Revenue Grow In The Next Five Years?
- What Is Discover’s Fundamental Value Based On Expected 2016 Results?
- How Has Discover’s Revenue Composition Changed In The Last Five Years?
- Up 14% YTD, What’s Next For Discover Financial Stock?
- Discover Financial Stock Is Undervalued
- Discover Financial Stock Is Fairly Priced At The Current Levels
- Discover Financial Stock To Edge Past The Revenue Consensus In Q1
- Discover Financial Stock Is Attractive At The Current Levels
- Discover Financial Stock To Beat The Earnings Consensus In Q4?
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