LOS ANGELES (AP) -- Discover Financial Services is expected to report a smaller profit in its fiscal second quarter on Tuesday, possibly a reflection of softer spending by U.S. consumers in the last two months of the March-to-May period.
WHAT TO WATCH FOR: How spending by U.S. consumers fared during the quarter, and whether late payment rates on Discover's namesake card continued to decline. That would enable the company to release some of the money it sets aside to cover unpaid bills — one of the main reasons Discover's earnings tripled in the same quarter last year.
The company saw its profit jump 36 percent in the first quarter, as use of the Discover card increased, customers racked up higher balances and also improved their payment habits.
U.S. retail spending increased on monthly basis in that December-to-February period. In contrast, retail spending rose about 0.4 percent in March, but fell 0.2 percent in both April and May, weighed down by a sharp drop in gas prices.
Job growth has slowed since the start of the year, and economists worry that consumer spending may further weaken if hiring and pay doesn't pick up. That would hurt retailers and credit card issuers like Discover, which makes money from interest charged on cardholders' balances.
Meanwhile, credit card users are getting better about making more timely payments.
The rate of payments at least 90 days overdue dipped in the first three months of the year to 0.73 percent, according to credit reporting agency TransUnion.
If that trend continued in May, it would bode well for Discover. In its first quarter, the company's late payments and defaults fell to 25-year lows, which enabled it to release some of its loan-loss reserves.
The economic shakeout of the last few years has left credit cards in the hands of more affluent consumers who are better able to pay their bills in full each month, while those with lower credit scores and presumably less ability to pay are now less likely to use credit.
Tighter underwriting standards also have pushed loss rates lower.
Investors also will listen Tuesday for any updates on Discover's latest line of business, home mortgages.
The company closed last week on its $45.9 million acquisition of Tree.com Inc.'s mortgage business and begun originating residential mortgages.
WHY IT MATTERS: Card companies have been reporting an increase in customers using cards and paying their balances off in the same month — meaning their balances don't rise. That limits a card issuer's gains from charging interest, but it's good for consumers.
The Riverwoods, Ill., company still has one of the lowest rates for default and delinquency in the credit card industry, the result of tighter lending standards and close monitoring of problem accounts.
WHAT'S EXPECTED: Analysts, on average, expect Discover to report earnings of 99 cents a share on $1.86 billion in revenue.
LAST YEAR'S QUARTER: In last year's fiscal second quarter, Discover posted a profit of $1.09 a share on revenue of $1.73 billion.
