Discover Beats Estimates

Discover fiscal fourth-quarter profit blew past Wall Street estimates, aided by improved credit performance.
By Laurie Kulikowski ,

RIVERWOODS, ILL. (

TheStreet

) --

Discover Financial Services'

(DFS) - Get Report

fiscal fourth-quarter profit blew past Wall Street estimates, aided by improved credit performance.

Discover reported net income for the three months ending November 30 totaled $349.6 million, or 64 cents per share compared a loss of $59.2 million, or 14 cents per share in the year earlier period. Net income to shareholders totaled $346.5 million vs. a loss of $77.8 million, a year earlier.

Analysts on average expected the company to earn 43 cents a share in the November-ending quarter, according to Thomson Reuters.

Discover's full year net income totaled $765 million compared to $1.3 billion in 2009, reflecting the $1.2 billion after tax gain from the

Visa

(V) - Get Report

and

MasterCard

(MA) - Get Report

antitrust litigation settlements.

"The sustained and significant improvement in the credit performance of the Discover card portfolio led to another very strong earnings performance this quarter," said David Nelms, Discover's chairman and chief executive.

"We continue to invest in marketing and business development in all of our businesses, which contributed to another quarter of growth in Discover Card spending, as well as record transaction volumes in our third-party credit and debit network businesses," Nelms said. "We look forward to capitalizing on the opportunities ahead of us in 2011, including our acquisition of The Student Loan Corporation as we strengthen our competitive position in private student loans."

Discover card sales volume rose 6% to $23 billion in the quarter. Credit card loans were $45.2 billion, essentially unchanged from the prior quarter and down $2.3 billion from the prior year. The decline was driven by a reduction in promotional rate balances and an increase in the payment rate, Discover said.

Asset quality continued to improve. The company's net charge-off rate for the quarter dropped 60 basis points from the prior quarter, to 6.58%. The delinquency rate for loans at least 30 days past due fell 27 basis points in the same time period, to 3.89%

The provision for loan losses declined by nearly half the amount in the third quarter to $383 million. Discover released $414 million in loan loss reserve for the quarter.

Discover recorded record processed transactions in its payment services unit of $40.4 billion for the fourth quarter, up 21% from the prior year, driven by higher PULSE and third-party issuer volume. The number of transactions on the PULSE network increased 33%, it said.

Discover shares were rising 0.9% to $19.30 before the market opened.

-- Written by Laurie Kulikowski in New York.

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Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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