* 1st-qtr EPS $1.33 vs est. $1.13
* Revenue, net of interest expense, rises 10 pct to $2 bln
* Credit card loans rise 5 pct to $48.7 bln
* Shares up nearly 2 pct
By Ashutosh Pandey
April 23 Credit card company Discover Financial
Services' first-quarter profit beat analysts'
expectations as customer spending rose and credit quality
The company, which has been trying to aggressively expand
its various businesses, launched Discover IT, a new flagship
credit card, in January. It has also forged partnerships with
online companies such as eBay Inc and Google Inc
to boost its payment services business.
The company's net profit rose to $673 million, or $1.33 per
share, in the first quarter, from $650 million, or $1.21 per
share, a year earlier. Revenue, net of interest expense, rose 10
percent to $2 billion.
Analysts expected the company to earn $1.13 per share,
excluding items, according to Thomson Reuters I/B/E/S.
Expenses rose 12 percent to $753 million in the first
quarter on higher employee compensation and marketing expenses
associated with the Home Loan Center acquisition, increased card
marketing initiatives and higher headcount.
The company, however, said its loan yields would remain
under pressure as it continues to expand its product portfolio,
including credit cards and student and home loans.
"We're working on a number of different opportunities that
will depress profits in the second year term which we believe
will position us for volume and revenue growth over the longer
term," Chief Financial Officer Mark Graf said on a conference
He reaffirmed the company's full-year forecast for
operating expenses of $3.1 billion, almost at the year-earlier
There is some pressure on card yields due to competition but
Discover should be able to offset it with funding benefits as
they grow their online deposits, said Janney Capital Markets
analyst Sameer Gokhale, who has a "buy" rating on the stock.
Discover, like American Express Inc, lends directly
to consumers but its business is a quarter of its rival's size.
The two companies compete with Visa Inc and MasterCard Inc
to process transactions for banks.
Credit card loans rose 5 percent to $48.7 billion in the
quarter. Discover card sales volume rose 4 percent.
The credit card lender and payment processing network set
aside $159 million to cover future bad debt, up 89 percent from
a year earlier. Delinquency or late payment rates for loans over
30 days past due was 1.77 percent, up 33 basis points.
Net interest margin rose 30 basis points to 9.39 percent,
reflecting decreased funding costs.
Discover increased its quarterly dividend by 43 percent to
20 cents last week. It announced a $2.4 billion share buyback
program last month after the U.S. Federal Reserve approved its
Discover Financial's shares, valued at about $21.47 billion,
were up 2 percent at $44.40 on the New York Stock Exchange on
Tuesday. They have risen 12 percent in the last three months,
outperforming the Thomson Reuters U.S. Consumer Financial
Services Index that has risen about 6 percent.