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Capital One Profit Clipped

The credit card company still beat analysts' estimates, despite the gloomy outlook.
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Capitol One Financial

(COF) - Get Capital One Financial Corporation Report

posted an 18% drop in first-quarter earnings after Thursday's closing bell, and it reported a grim outlook for its credit card business due to the downturn in the economy.

The company reported earnings of $548.5 million, or $1.47 a share, for the period. That compares with the $675 million, or $1.62 a share, it earned in the same quarter last year.

Those results include a $200 million benefit related to the initial public offering of


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. They were weighed down by the addition of $310 million to the company's loan-loss reserves, and charges related to the closing of its home-lending unit, GreenPoint Mortgage.

Excluding one-time items, Capital One said it earned $632.6 million, or $1.70 a share, in its first quarter. Still, that blew away expectations on Wall Street, where analysts were expecting earnings of $1.45 a share, according to consensus estimates reported by Thomson Financial.

Capitol One shares have been under pressure along with the rest of the financial industry as the U.S. housing downturn spills over into the broader economy, crimping the job market and threatening to cause a slowdown in U.S. consumer spending. The stock was recently trading down $1.14, or 2.3%, to $47.60 in after-hours trading, having gained 5.4% in the regular trading session.

"We're well positioned to navigate near-term cyclical challenges with resilient businesses, experience in managing through prior cyclical downturns, and a strong balance sheet," said Capital One CEO Richard Fairbank. "We're actively managing the company to protect our franchises and deliver shareholder returns."

Capital One's first-quarter revenue rose 14% to $3.9 billion, falling short of analysts' expectations for revenue of $4.4 billion.

"A substantial increase in revenue margin coupled with expense reductions largely offset the adverse impact of higher credit costs," said CFO Gary Perlin.

The company's regional bank division posted a 27% decline in earnings, while profits at its national lending unit were flat. Its U.S. credit card business posted an 8.8% decrease in quarterly earnings, while its international card business enjoyed a 70.1% jump in earnings while its auto finance unit posted a loss for the period of $82.4 million compared to last year's loss of $112.4 million.

The company said its overall credit performance "was largely in line with expectations," but noted that its "outlook significantly deteriorated due to weakness in U.S. economy."