American Express Co. dropped after credit-card spending growth slowed in the second quarter to the weakest pace since the financial crisis and the lender forecast higher expenses this year.
AmEx slid 3.2 percent to $76.49 at 1:29 p.m. in New York, the third-worst performance in the Dow Jones Industrial Average and the most since April. The shares tumbled 18 percent in 2015.
The biggest credit-card issuer by purchases, AmEx is ending its relationship with Costco Wholesale Corp. next year, and plans to increase spending to help retain the retailer’s shoppers, attract new customers and bolster rewards programs. Spending on Costco-branded AmEx cards began to decelerate in the second quarter, adding to a slowdown in billings growth and a 4 percent revenue decline, the company said.
“You should expect to see marketing and promotion expense increase substantially in the second half of the year,” AmEx Chief Financial Officer Jeff Campbell said Wednesday in a conference call with analysts. “The elevated level of spending in 2015 will focus on the many growth opportunities that we have across our company.”
Second-quarter net income fell 3.7 percent to $1.47 billion from a year earlier when the company booked a gain from the sale of its business-travel unit, the lender said in a statement. While profit beat analysts’ estimates, revenue slipped to $8.28 billion, fueled by declines in the commercial-services unit and international business, and a strengthening U.S. dollar. Analysts surveyed by Bloomberg had estimated revenue of $8.43 billion.
Total spending on AmEx’s network rose 2 percent, or 6 percent adjusted for currency fluctuations, to $262 billion. That’s the slowest quarterly growth since 2009, according to data compiled by Bloomberg. Discount revenue, or what AmEx generates from the fees it charges merchants, rose less than 1 percent to $4.95 billion from a year earlier.
“We continue to see current challenges facing AmEx as difficult to overcome without a significant change of business tack, or acknowledgment that historical returns aren’t coming back,” Jason Arnold, an analyst at RBC Capital Markets, said in a research note.
Discover Financial Services, the Riverwoods, Illinois-based credit-card lender, also reported a profit decline after markets closed Wednesday. On Thursday, the shares slid 3.7 percent, the most since January and the worst performance in the 88-company Standard & Poor’s 500 Financials Index.