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Discover Misses Earnings Estimates but Beats Revenue Estimates

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Part 3
Discover Misses Earnings Estimates but Beats Revenue Estimates PART 3 OF 8

Factors That Led to a Decline in Discover’s Net Income in 1H17

Fall in net income

In 1H17, Discover Financial Services’ (DFS) net income fell compared to its 1H16 net income. In 1H16, the company reported net income of ~$1.2 billion and its net income in 1H17 was ~$1.1 billion, representing a decline of 7%. This decline was primarily due to a decrease in the company’s total other income in 1H17 compared to 1H16.

Factors That Led to a Decline in Discover’s Net Income in 1H17

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In 1H16, Discover Financial reported total other income of $939.0 million and in 1H17, the company reported total other income of $928.0 million. This decline was mostly due to a decrease in revenues from its Discount and Interchange fees from $538.0 million in 1H16 to $511.0 million in 1H17.

Discover Financial incurred total other expenses of ~$1.79 billion in 1H16 and in 1H17, the company reported total other expenses of ~$1.80 billion.

Discover Financial’s employee compensation expenses rose 7% in 1H17 compared to 1H16. In 1H16, the company incurred employee compensation expenses of $685.0 million and in 1H17, these expenses totaled $730.0 million. This increase was mostly due to the company’s newly hired employees. However, the rise in average salaries also contributed to the increase in employee compensation expenses in 1H17 compared to 1H16.

Operating leverage

On June 30, 2017, Discover Financial Services’ (DFS) operating leverage was 0.4%. The operating leverage figures of other consumer financial companies (XLF) on the same date follow:

  • Ally Financial (ALLY): 3.8%
  • PNC Financial Services Group (PNC): 1.3%
  • Regions Financial (RF): -0.9%
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