American Express Profit Drops But Beats Expectations -- 3rd Update
April 20 2016 - 7:13PM
Dow Jones News
By Robin Sidel and Lisa Beilfuss
American Express Co. said its first-quarter profit fell 6.5% as
the card company pumped up its spending in a bid to attract new
customers and expand its lending portfolio.
Revenue beat Wall Street estimates, edging up 1.7% to $8.09
billion, or 4% excluding currency fluctuations. Investors have been
increasingly focused on the company's revenue growth because it
repeatedly has fallen short of internal growth targets.
Shares, down 7% since the start of the year, rose 3.7% in
after-hours trading Wednesday as earnings also beat Wall Street
estimates.
Spending by cardholders rose 6%, although the increase was
partly offset by lower merchant fees and higher costs tied to
cash-back rewards that are among the most popular perks for
consumers.
AmEx is trying to recover from a difficult 2015 in which it
announced the end of a 16-year exclusive relationship with Costco
Wholesale Corp., lost a federal antitrust court case, and had a
senior executive die unexpectedly.
The company has taken a number of actions to change its
trajectory, including saying it would cut $1 billion in costs by
the end of next year. It also is trying to expand its merchant
acceptance, particularly among small retailers that don't now take
its cards.
"Our priorities for this year and next continue to be
accelerating revenue growth, resetting our cost base and optimizing
the investments we're making in the business," said American
Express Chief Executive Kenneth Chenault in a news release.
The end of the Costco relationship, in which AmEx cards are the
only credit cards accepted at the warehouse club, will continue to
affect the company's results.
Among other things, customers already are reducing their
spending on AmEx cards at Costco ahead of the relationship's end in
June, when AmEx will no longer be accepted there.
In addition, it isn't clear if AmEx customers will continue
using their cards once AmEx's co-brand credit card with Costco is
replaced by one issued by Citigroup Inc. Some 70% of the spending
that occurs on the AmEx-Costco card takes place outside of the
warehouse club.
"The landscape will change when Citi launches its new Costco
co-brand card in June, but we will stay focused on the
spend-and-lend activity of these customers," said Jeffrey Campbell,
AmEx's chief financial officer.
AmEx said it added 3.1 million cards during the quarter, some of
which came from converting AmEx-Costco card customers to other AmEx
products.
"The real battle for the hearts and minds of our customers is
still in the early stages," Mr. Campbell said.
Total loans rose 11% to $58.6 billion, excluding the Costco and
Jetblue Airways Corp. co-brand cards loan portfolios, both of which
are being sold.
In all, American Express reported a profit of $1.43 billion, or
$1.45 a share, down from $1.53 billion, or $1.48 a share, a year
earlier.
In the first quarter, the company booked an $84 million charge
stemming from the related restructuring efforts.
Revenue edged up 1.7% to $8.09 billion, or 4% excluding currency
fluctuations. The company credited higher net interest income, card
member spending and net card fees.
Analysts projected $1.35 in earnings a share on $8 billion in
revenue, according to Thomson Reuters.
Write to Robin Sidel at robin.sidel@wsj.com and Lisa Beilfuss at
lisa.beilfuss@wsj.com
(END) Dow Jones Newswires
April 20, 2016 18:58 ET (22:58 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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