American Express Co. (AXP), the biggest credit-card issuer by purchases, posted a record profit in the second quarter, exceeding analysts’ estimates, as customer spending increased.
Net income rose 4.9 percent to $1.41 billion, or $1.27 a share, from $1.34 billion, or $1.15, a year earlier, the New York-based lender said yesterday in a statement. The average estimate of 26 analysts surveyed by Bloomberg was $1.22.
Chief Executive Officer Kenneth I. Chenault is trimming the firm’s workforce to contain expenses and investing in new products such as a prepaid card sold by Wal-Mart Stores Inc. (WMT) to broaden the lender’s reach beyond more affluent customers.
“We are well on track with the restructuring and related initiatives that we announced earlier this year,” Chenault said in the statement. “They are helping us contain expense growth and that, in turn, is giving us the flexibility to make substantial investments designed to grow the business and expand into newer segments.”
American Express dropped the most in a year yesterday, falling as much as 4.7 percent on an intraday basis, after some analysts said a European Commission proposal to cap bank-card fees would crimp profit. The shares pared losses, declining 1.9 percent to $76.80 after the company said the impact would be limited. The stock gained 34 percent this year.
“American Express has been in touch with senior policymakers at the commission and will continue to represent its positions vigorously throughout the process,” Chief Financial Officer Dan Henry said on a conference call.
Second-quarter net revenue rose 3.5 percent to $8.25 billion, missing the $8.28 billion average estimate of analysts in the Bloomberg survey. Consumer spending in the U.S., where AmEx gets about 70 percent of its revenue, climbed at a 1.5 percent annualized rate in the second quarter and retail sales rose 0.4 percent in June, less than forecast, according to Commerce Department figures this week.
Worldwide card spending, or billed business, advanced 7.3 percent to $237.7 billion, according to a financial supplement. Customers spent an average of $4,097 in the quarter, a 3.8 percent increase from a year earlier, when AmEx had fewer cards outstanding. Expenses rose 0.6 percent to $5.66 billion, within Chenault’s 3 percent growth threshold.
Global Network Services, a unit that licenses other banks to issue AmEx-branded cards, would be directly affected by the European Commission proposal, Henry said. GNS purchase volume in European Union markets accounted for less than 15 percent of the $100 billion spent on AmEx cards last year in Europe, the Middle East and Africa, he said. Total worldwide spending in 2012 was $888.4 billion, according to the firm’s annual report.
Second-quarter U.S. card income climbed 3.5 percent to $743 million and international card income rose 17 percent to $208 million, according to the statement.
The 5,400 job cuts announced in January mainly affect travel services as consumers and businesses rely more on digital technology for bookings. Travel commissions and fees declined 5 percent to $495 million in the period amid a slide in worldwide sales, AmEx said.
Write-offs for loans deemed uncollectible averaged 1.97 percent for AmEx in the second quarter, according to data compiled by Bloomberg. Loans at least 30 days overdue, a signal of future defaults, averaged 1.1 percent, the lowest among the six biggest U.S. credit-card issuers, the data show.
Chenault, 62, who said April 15 that he’s in no hurry to retire, is overseeing a transition in senior management. That same day, Ed Gilligan, 54, was promoted to president from vice chairman, rekindling questions about succession plans. Last month, AmEx appointed McKesson Corp. (MCK)’s Jeffrey C. Campbell to succeed Henry, who’s retiring after more than 20 years with the lender.
Former International Business Machines Corp. CEO Samuel J. Palmisano and ex-Areva SA (AREVA) chief Anne Lauvergeon joined AmEx’s board in March. Palmisano, 61, serves on the governance and compensation committees, and Lauvergeon, 53, is a member of the audit and public responsibility committees.
Palmisano is a senior adviser to Bloomberg LP, the parent of Bloomberg News.