Discover Misses Earnings Expectations as Profit Falls 11%

By AnnaMaria Andriotis Features Dow Jones Newswires

Discover Financial Services reported second-quarter earnings after the market close Wednesday that fell short of analysts' expectations largely due to the company setting aside more cash to cover future loan losses.

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Profit for the quarter fell 11% to $546 million, or $1.40 a share, from $616 million, or $1.47 a share a year earlier. Analysts polled by Thomson Reuters expected profit of $551 million and earnings of $1.45 a share.

Discover shares fell 3.8% in after-hours trading.

The company's revenue net of interest expense came in at $2.42 billion, slightly above analysts' expectations and up 9% from a year ago. That was driven by higher net interest income, helped by rising interest rates and growing balances. The company's credit-card yield increased 0.24 of a percentage point from a year ago due to the rising prime rate.

Provisions for loan losses increased 55% from a year earlier to $640 million.

Discover reported a total net charge-off rate, which reflects losses on credit cards, personal and student loans, of 2.71% for the second quarter, up 0.53 percentage point from a year ago.

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Discover revised its 2017 guidance for charge-offs to a range of 2.7% to 2.8%. In the first quarter, management guided to a 0.3 to 0.35 percentage point increase in the credit-loss rate for the full year with an implied a credit-loss rate between 2.55%-2.60%

Net charge-offs for credit cards increased to 2.94% in the second quarter, up from 2.84% in the first quarter and 2.39% a year ago

Operating expenses remained fairly steady at $912 million, rising 1% year over year.

Write to AnnaMaria Andriotis at annamaria.andriotis@wsj.com

(END) Dow Jones Newswires

July 26, 2017 17:48 ET (21:48 GMT)