AmEx Profit Beats Estimates as Purchases Climb; Shares Rise

  • Revenue advances 1.6% to $8.09 billion, in line with estimates
  • Worldwide billed business increases 3.3% to $253.8 billion

American Express Co., the biggest U.S. credit-card issuer by purchases, posted a first-quarter profit that beat analysts’ estimates as customers increased spending.

The lender’s shares climbed in late trading Wednesday after it reported per-share earnings of $1.45, exceeding the $1.33 average estimate of 29 analysts surveyed by Bloomberg. Net income slid 6.5 percent to $1.43 billion from $1.53 billion a year earlier, AmEx said in a statement. 

Chief Executive Officer Ken Chenault has reassigned senior managers to buoy earnings and consolidate marketing operations. The firm has vowed to trim $1 billion in costs by the end of 2017, though Chenault has said quarterly results will be uneven as the company spends money to attract new customers. Revenue increased 1.6 percent to $8.09 billion, in line with the estimates, while expenses rose 4.9 percent to $5.47 billion.

“Revenues reflected strong, underlying growth in our lending portfolio, along with higher cardmember spending and fee income,” Chenault, 64, said in the statement. “Investment spending was up significantly and reflected initiatives to grow the business by expanding our cardmember base and gaining a greater share of their overall spending and borrowing.”

Shares Rise

AmEx climbed 3.7 percent to $67.40 at 6:01 p.m. in New York. The shares slid 6.5 percent this year through the close of regular trading.

Last year, American Express said it was ending its U.S. partnership with Costco Wholesale Corp., a relationship that accounted for 20 percent of AmEx’s worldwide loans and 8 percent of customer spending, and its agreement with JetBlue Airways Corp. AmEx may lose another valuable credit-card partner if Marriott International Inc. completes its acquisition of Starwood Hotels & Resorts Worldwide Inc., analysts including RBC Capital Markets’ Jason Arnold have said.

Worldwide billed business, or customer card spending, advanced 3.3 percent to $253.8 billion in the quarter from a year earlier. The average discount rate, a measure of the fees AmEx charges merchants, fell to 2.44 percent from 2.49 percent, the company said. Loans declined 14 percent to $58.6 billion from a year earlier, driven by the loss of the Costco and JetBlue portfolios. Excluding those items and adjusting for currency fluctuations, total loans increased 11 percent, the company said in a presentation.

‘Decent Quarter’

AmEx “reported a decent quarter with areas that both the bulls and bears can pick at,” Sanjay Sakhrani, a KBW analyst, said in a note. “The company saw a modest acceleration in its worldwide billed business growth,” but benefited from an extra day in the quarter because of leap year, he said.

Return on equity, a measure of profitability, dropped to 23.6 percent from 29 percent a year earlier, according to the statement. AmEx added about 3 million proprietary cards in the quarter.

“When you look at the incremental cards we’re acquiring, a significant portion of the increment is driven by those efforts to put other AmEx products in the hands of Costco co-brand customers," Chief Financial Officer Jeff Campbell said on a call with analysts.

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