AmEx Surges Most in Seven Years After Profit Beats Estimates

  • Net income falls 9.8% as AmEx grapples with Costco void
  • Lender expects full-year marketing costs to rise 10%, CFO says

American Express Co. surged the most in more than seven years after posting third-quarter profit that beat analysts’ estimates and raising its full-year profit forecast.

The lender’s shares climbed 9 percent to close at $66.78 in New York, the biggest jump since July 2009 and the best performance in the S&P 500 Index. The stock has dropped 4 percent this year.

Profit excluding a restructuring charge was $1.24 a share, the New York-based company said late Wednesday in a statement, exceeding the 96-cent average estimate of 23 analysts surveyed by Bloomberg. Net income dropped 9.8 percent to $1.14 billion from a year earlier, reflecting the loss of its biggest co-brand partner, Costco Wholesale Corp.

Card spending “bounced nicely and was aided by very strong card growth that helped offset some of the impact of the Costco portfolio rolloff,” John T. Williams, an analyst at Compass Point Research & Trading, said Thursday in a note to clients. AmEx’s results and outlook “brings a sigh of relief,” said Williams, who has a buy rating on the stock.

Expense Cuts

AmEx, led by Chief Executive Officer Ken Chenault, 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, the biggest U.S. credit-card issuer by customer spending, has vowed to trim $1 billion in expenses by the end of 2017 as it seeks to fill the void left by Costco, which accounted for 20 percent of AmEx’s worldwide loans and 8 percent of customer spending. Chief Financial Officer Jeff Campbell said on a conference call Wednesday that quarterly results will be uneven as the firm boosts spending on marketing and incentives. Full-year marketing costs are expected to be 10 percent higher than in 2015, he said.

Third-quarter revenue fell 5 percent to $7.77 billion from a year earlier. Excluding the impact of Costco, revenue rose 5 percent, the company said. Total expenses declined 3 percent to $5.5 billion, beating analysts’ estimates.

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.

American Express plans to place “renewed emphasis” on its Platinum card portfolio and is launching its largest rewards program yet to encourage small businesses to accept its cards as payment, Campbell said. The lender also is increasing digital marketing efforts to expand its cardholder base, he said.

“There’s clearly still a lot of work to do,” Campbell said. “We will be supporting all of these initiatives with an extensive advertising campaign. With these and other initiatives coming together at the start of the peak shopping season, it will be a very active fourth quarter.”

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