AmEx Profit Beats Estimates on Lower Costs, Raises Forecastby
Net income fell 9.8% to $1.14 billion or $1.20 a share
Lender increases full-year forecast, 2017 remains unchanged
American Express Co., the largest U.S. credit-card issuer by purchases, posted third-quarter profit that beat analysts’ estimates on lower expenses, while raising its full-year forecast for profitability.
The lender’s shares surged in late trading after it reported net income of $1.14 billion, a 9.8 percent drop from a year earlier. Excluding a restructuring charge, adjusted profit was $1.24 a share, the New York-based company said Wednesday in a statement, topping the 96-cent average estimate of 23 analysts surveyed by Bloomberg.
“Strong operating discipline and credit quality helped to keep us ahead of the 2016 financial outlook that we first provided at the beginning of the year,” Chief Executive Officer Kenneth Chenault, 65, said in the statement.
AmEx has vowed to trim $1 billion in expenses by the end of 2017 as it grapples with the loss of its biggest co-brand partner Costco Wholesale Corp. AmEx has said quarterly results will be uneven as the firm is also boosting spending on marketing and other incentives, investing in new products and bolstering existing card rewards.
Revenue fell 5 percent to $7.77 billion from a year earlier, missing analysts’ estimates. Excluding the impact of Costco, revenue rose 5 percent, the company said. Total expenses declined 3 percent to $5.5 billion, reflecting lower Costco-related rewards costs.
AmEx raised its full year EPS forecast to $5.65 to $5.75 from $5.40 to $5.70, while the prediction for 2017 remains unchanged at $5.60.
American Express rose 4.9 percent to $64.27 at 4:31 p.m. in New York, after announcing the results. The stock has fallen 12 percent this year as the company parted ways with Costco, which accounted for 20 percent of AmEx’s worldwide loans and 8 percent of customer spending. Banks and rival networks have bid aggressively to wrest away these partnerships, and Chenault has vowed to avoid pursuing any deals where the terms don’t make economic sense.
Worldwide billed business, a measure of customer card spending, fell 3 percent to $251.2 billion. The company had 108.8 million credit cards issued at the end of the quarter, 7 million fewer than a year earlier, when it still owned the Costco portfolio. Loans fell 12 percent to $60.6 billion.
AmEx’s higher rewards spending comes as rival card issuers look for footholds in the burgeoning luxury credit-card market. In August, JPMorgan Chase & Co. introduced the Sapphire Reserve, which offers a sign-up bonus of 100,000 points, triple points on travel and dining, airport lounge memberships, and credits to offset the card’s $450 annual fee. So many people signed up that the bank ran out of metal for the cards after about a week.
Combined income from card operations dropped 15 percent to $3.1 billion from a year earlier at Citigroup Inc., JPMorgan Chase & Co., Bank of America Corp., the three largest U.S. credit-card issuers. At the same time, combined expenses from those lender’s consumer bank units rose one percent to $15.3 billion. Visa Inc., the largest U.S. payments network, is scheduled to report results Monday, with Mastercard Inc. slated for Oct. 28.