Discover Financial Services'DFS second-quarter 2018 adjusted earnings of $1.91 per share surpassed the Zacks Consensus Estimate by 1.06%. The bottom line also rose 36.4% year over year on higher revenues.
Operational Update
For the reported quarter, the company's revenues net of interest expenses increased 7.6% year over year to $2.6 billion, driven by strong loan and Payment Services transaction dollar volume growth. The top line, however, missed the Zacks Consensus Estimate by 1.2%.
Discover Financial Services Price, Consensus and EPS Surprise
Discover Financial Services Price, Consensus and EPS Surprise | Discover Financial Services Quote
Consumer deposits grew 12% from the year-ago quarter to $42.3 billion.
Total loans grew 9% year over year to $84.8 billion.
Interest expenses of $507 million jumped 26.8% year over year.
Total other expenses increased 7.9% to $984 million due to higher employee compensation and benefits, marketing and business development expenses as well as professional fees.
Segment Update
Direct Banking Segment
This segment's pre-tax income inched up 0.7% to $837 million as the increase in net interest income was largely offset by an increase in the provision for loan losses and higher operating expenses.
Total loans increased 9% year over year to $84.8 billion. Credit card loans rose 10% to $67.8 billion.
Personal loans increased 5%, private student loans increased 2% and climbed 10% excluding purchased student loans, all on a year-over-year basis.
Net interest income increased 10% year over year, driven by loan growth and a higher net interest margin. Net interest margin was 10.21%, up 10 basis points from the year-ago quarter.
Payment Services Segment
Payment Services pretax income was $40 million in the quarter, up 11.11% from the year-earlier quarter.
Payment Services transaction dollar volume was $57.3 billion, up 14% from the prior-year-quarter.
PULSE transaction dollar volume increased 14% year over year, driven by the impact of new issuers on the network as well as strong growth from existing issuers.
Diners Club volume rose 8% from the year-ago quarter, driven by a continued strength of newer franchise relationships.
Network Partners volume expanded 33%, backed by AribaPay.
Strong Financial Position
Discover Financial had total assets worth $102.75 billion as of Jun 30, 2018, up 9.6% year over year.
Total liabilities as of Jun 30, 2018 were $91.86 billion, up 11.3% year over year.
Total equity was $10.89 billion on Jun 30, 2018, down 3.3% year over year.
Discover Financial's return on equity for the second quarter was 25%.
Share Repurchase Update
During the second quarter, the company repurchased approximately 7.6 million shares of common stock for $555 million.
During the quarter, the company announced that it will hike quarterly dividend to 40 cents per share from 35 cents and repurchase shares of up to $1.85 billion during the four quarters ending Jun 30, 2019.
Zacks Rank and Performance of Other Peers
Discover Financial carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .
Among the other players from the finance sector, American Express Co. AXP , Capital One Financial Corp. COF and Mastercard Incorporated MA beat their second-quarter earnings estimates.
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Discover Financial Services (DFS): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
