American Express Profit Beats Estimates as Card Spending Climbs
American Express Co. (AXP), the biggest U.S. credit-card issuer by customer spending, reported a first- quarter profit that exceeded analysts’ estimates as consumers boosted purchases.
Net income rose 1.9 percent to $1.28 billion, or $1.15 a share, from $1.26 billion, or $1.07, a year earlier, the New York-based lender said yesterday in a statement. The average estimate of 25 analysts surveyed by Bloomberg was $1.12.
Chairman and Chief Executive Officer Kenneth I. Chenault, 61, is cutting about 5,400 jobs this year to contain expenses as AmEx rolls out products such as a prepaid card sold by Wal-Mart Stores Inc. to broaden the lender’s client base beyond more affluent credit and charge-card customers.
“We recognize that our business is not immune to the economic environment, but we continue to believe that the flexibility of our business model enables us to deliver significant value to shareholders, even in an extended slow growth environment,” Chief Financial Officer Dan Henry said in a conference call with analysts after results were announced.
Net revenue for the quarter increased 3.9 percent to $7.88 billion, less than the $8.04 billion average estimate of analysts surveyed by Bloomberg. Retail sales in the U.S., where AmEx gets about 70 percent of its revenue, dropped in March by the most in nine months, pointing to a slowdown in consumer spending as the quarter drew to a close.
American Express fell less than 1 percent in extended trading yesterday in New York. The shares had gained 12 percent this year through the close of regular trading, compared with a 9.7 percent advance for the Standard & Poor’s 500 Financials Index of 81 U.S. companies.
Worldwide card spending, or billed business, rose 6.3 percent to $224.5 billion, AmEx said in a financial supplement. Customers spent an average of $3,905 in the quarter, a 3.5 percent increase from a year earlier, when AmEx had fewer cards outstanding. Expenses rose 1 percent to $5.48 billion, within the 3 percent growth target Chenault set for the next two years.
The job cuts announced in January mainly affect travel services as consumers and businesses rely more on digital technology for bookings. Commissions and fees from that business declined 3 percent in the first quarter, fueled by a slide in business-travel sales, AmEx said.
The lender had posted a 47 percent drop in fourth-quarter profit and recorded after-tax charges totaling $594 million, including costs tied to severance and changes in how the firm estimates future redemptions of credit-card rewards.
First-quarter U.S. card income rose 6.9 percent to $804 million and international card income fell 9.6 percent to $178 million, according to the statement.
American Express added more than 575,000 new customers through its Bluebird reloadable prepaid card in the four months after introducing the product at Wal-Mart stores in October, the lender said. The cards, which target so-called “unbanked” consumers, allow holders to write checks and have government benefits such as Social Security payments deposited directly into their accounts, which are now eligible for backing from the Federal Deposit Insurance Corp.
“We are seeing healthy growth in reloadable prepaid across that product set,” Henry said in the conference call.
The deal with Bentonville, Arkansas-based Wal-Mart may help AmEx benefit from U.S. caps on debit-card “swipe” fees that have cut annual revenue for the biggest banks by about $8 billion and prompted some lenders to charge customers for checking accounts. Congress, in passing the fee limits as part of the 2010 Dodd-Frank Act, exempted reloadable prepaid cards.
Vice Chairman Ed Gilligan, 53, who oversees AmEx’s global consumer, small business, merchant and network groups, was promoted to president on April 15, rekindling questions about the company’s succession plans. Chenault, who had been a candidate to succeed Timothy F. Geithner as U.S. Treasury secretary, said a few hours later that he’s in no hurry to retire.
“I’m happy to keep doing this for a period of time,” Chenault said during a round-table discussion at the Economic Club of Washington, D.C. “You shouldn’t do a job that you can’t be passionate about, and I’m really excited about the opportunities that we have as a company, what our future is, and I’m in good health.”
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