Shares of Discover Financial Services (DFS) have pared some losses this morning, at one point falling as much as 12%, now down only $1.51, or 9%, at $14.91, after the company reported fiscal Q4 earnings per share in line with estimates but gave an outlook for credit card margins that was disappointing.
Excluding special items, the company reported a net profit per share of 12 cents. There was some confusion on Thomson Financial as to whether that was comparable to the 15-cent average estimate of analysts. Richard Shane, who follows the stock for Jefferies & Co., says the 12 cents was a slight beat on his 11-cent estimate, but the numbers this quarter were messy and so it’s conceivable it was actually below some estimates.
The main trouble for the stock is that the “yield” on the credit card business fell a quarter of a percentage point, to 9.37% largely because higher-yielding card accounts declined as the company started to implement provisions of the credit card reform act passed by congress back in May, dubbed “CARD” legislation.
Management said on a conference call with analysts this morning that yields will continue to come down as a result of CARD, with CFO Roy Guthrie remarking, “Looking ahead at yield in the US card segment, we expect to see continuing downward pressure on yield as the Card Act is fully implemented and its effects are accumulated throughout the year.”
Other negatives from the quarter included a rise from the prior quarter in the “managed net charge-offs” and a rise in accounts delinquent more than 30 days — which is perhaps no surprise given household debt fell by a record amount in the third quarter. Lower debts, higher charge-offs.
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