Electronic payment services company Discover Financial Services (DFS) is due to release its first-quarter results before market opens on Thursday, March 19 with a conference call scheduled at 11:00am ET.
Analysts polled by Thomson Reuters expect the company to report a loss of $0.15 per share on revenues of $484 million for the quarter. Analysts' estimates typically exclude special items. In the year-ago period, the company reported net income of $81.2 million or $0.17 per share on revenue net of interest expense of $1.29 billion.
U.S. consumer borrowing rose out of the blue in January after three months of declines, as increasing unemployment rate drove Americans to pull out their credit cards to make use of the advantages of post-holiday offers.
The Federal Reserve said consumer credit increased at an annual rate of $1.7 billion in January 2009 to $2.56 trillion. The small gain was primarily due to the category that includes credit cards, which rose 1.2% in January after dropping 9.5% in December. The non revolving credit category that includes automobile loans rose 0.6% after a slight 0.1% rise in December. The increases reflect January retail sales growth of 1%. However, the gains in credit and consumer spending may be ephemeral as paysheets decline and banks remain reluctant lenders.
Most recently, the Riverwoods, Illinois-based credit card lender received about $1.2 billion in cash as part of the U.S. Treasury's Capital Purchase Program. In exchange, the Treasury gets 1.22 million shares of preferred stock and a 10-year warrant to purchase 20.5 million of its common shares for $8.96 a share.
Discover Financial swung to a profit in the fourth quarter, reflecting gains from an antitrust lawsuit settlement with Visa and MasterCard. Fourth-quarter net income totaled $432 million or $0.89 per share, compared to a net loss of $56.48 million or $0.12 per share in the year-earlier period. Revenue net of interest expense grew to $1.975 billion from $1.261 billion last year. On a managed basis, revenue net of interest expense was $2.367 billion, up from the previous year's revenue of $1.550 billion.
The New York-based financial services provider American Express Co. (AXP) had posted a 79% decline in fourth-quarter net income, adversely hurt by loan delinquencies, write-offs and restructuring charges. Net income plunged to $172 million or $0.15 per share from $831 million or $0.71 per share in the year-ago period. Total revenues net of interest expense were $6.51 billion, down 11% from $7.32 billion in the previous year.
Among others in the industry, San Francisco, California-based Visa Inc. (V) reported higher profit for its first quarter, reflecting solid growth in payments volume. The San Francisco, California-based company's first-quarter net income was $574 million or $0.74 per class A share, compared to $424 million in the prior-year quarter. Net operating revenue increased 17% to $1.74 billion from $1.49 billion in the previous year.
The world's second biggest credit card processor Mastercard Inc. (MA) reported a fourth-quarter net income of $239.4 million or $1.84 per share, compared to $304.2 million or $2.26 per share in the prior year period. Net revenue rose 14.2% to $1.22 billion from $1.07 billion a year ago, driven by a 6% increase in the number of transactions processed and pricing changes.
Visa, and MasterCard are benefiting from consumers' increasing preference for using plastic over cash and cheques. Unlike American Express and Discover Financial, they are insulated from rising U.S. defaults as they do not make loans to cardholders.
DFS shares, which have been trading between $4.73 and $19.87 in the past 52 weeks, closed Wednesday's trading session at $7.24, up 67 cents or 10.20%.
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