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Discover Financial (DFS) Q2 Earnings & Revenues Top Estimates

Zacks Equity Research

Discover Financial Services’ DFS second-quarter 2019 adjusted earnings of $2.32 per share beat the Zacks Consensus Estimate by 10%. Moreover, the bottom line improved 21.5% year over year on higher revenues.

Operational Update

For the reported quarter, the company’s revenues, net of interest expenses, increased 9.6% year over year to $2.8 billion, driven by higher net interest income, the company’s other total income. The top line also exceeded the Zacks Consensus Estimate by 2.1%.

Total loans grew 6% year over year to $90.2 billion.

Interest expenses of $645 million jumped 27.2% year over year.

Total other expenses rose 9.6% to nearly $1.1 billion due to higher employee compensation and benefits, information processing and communications, professional fees and other expenses.

Discover Financial Services Price, Consensus and EPS Surprise

Discover Financial Services Price, Consensus and EPS Surprise

Discover Financial Services price-consensus-eps-surprise-chart | Discover Financial Services Quote

Segment Update

Direct Banking Segment


This segment’s pre-tax income improved 12.4% to $941 million owing to more net interest income. However, the same was largely offset by a rise in provision for loan losses and operating expenses.

Total loans climbed 6% year over year to $90.2 billion. Credit card loans augmented 7% to $72.4 billion.

While personal loans inched up 2%, private student loans rose 3%. The same also ascended 9% excluding purchased student loans, all on a year-over-year basis.

Net interest income increased 9% year over year, driven by loan growth and net interest margin expansion. Net interest margin was 10.47%, up 26 basis points from the year-ago quarter.

Payment Services Segment

Payment Services pre-tax income was $46 million in the quarter under review, up 6% from the year-earlier period on the back of higher revenues.

Payment Services transaction dollar volume was $61.8 billion, up 8% from the prior-year period.

PULSE transaction dollar volume expanded 7% year over year, aided by a solid uptick from current issuers, the effect of new issuers on the network and more support for the company’s PINless products.

Diners Club volume was up 0.7% from the year-earlier quarter.

Network Partners volume expanded 29%, backed by AribaPay.

Strong Financial Position

Discover Financial had total assets worth $110.7 billion as of Jun 30, 2019, up 7.7% year over year.

Total liabilities as of Jun 30, 2019 were $99 billion, up 8% year over year.

Total equity was $11.5 billion on Dec 31, 2018, up 5.5% year over year.

Discover Financial’s return on equity for the second quarter was 26%.

Share Repurchase Update

During the quarter under consideration, the company repurchased approximately 6 million shares of common stock for $461 million.

Shares of common stock outstanding dipped 1.8% from the previously reported quarter’s tally.

In June, the company declared its capital plan for four quarter ending Jun 30, 2020, according to which the company will buy back shares up to $1.63 billion and there is also a hike in its quarterly dividend from 40 cents to 44 cents per share.

Zacks Rank

Discover Financial carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Peer Releases From Finance Sector

The Hartford Financial Services Group, Inc. HIG is set to report second-quarter earnings on Aug 1 and the consensus mark for the same stands at $1.11. The stock has a Zacks Rank of 3.

Lincoln National Corporation’s LNC consensus estimate for second-quarter earnings is pinned on $2.32. This Zacks #3 Ranked player is scheduled to release quarterly earnings on Jul 31.

Alleghany Corporation Y is slated to announce second-quarter earnings on Aug 6. The Zacks Consensus Estimate for the same is pegged at $9. The stock carries a Zacks Rank #3.

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