AmEx Profit Rises on Gain Tied to Costco Portfolio Sale -- 4th Update
July 20 2016 - 7:33PM
Dow Jones News
By Josh Beckerman and Robin Sidel
American Express Co. said its second-quarter profit rose 37% on
a big gain tied to the sale of its Costco co-brand card portfolio,
lower expenses and higher card-member spending.
The company said that other parts of its quarterly results were
also affected by the end of its 16-year exclusive relationship with
Costco Wholesale Corp., which is now only accepting Visa-branded
credit cards. Among other things, AmEx said spending on its Costco
cards slowed significantly before the partnership ended June
19.
AmEx is trying to replace the Costco-Amex cards with other AmEx
products, especially because 70% of the spending on the Costco card
takes place outside the warehouse club. The Costco cards
represented roughly one of every 10 AmEx cards in circulation.
"We are pleased with the demand for our products and the success
we have had with putting cards in the hands of Costco co-brand
cardmembers," Jeffrey Campbell, AmEx's chief financial officer,
said in a conference call to discuss earnings.
Revenue slipped 0.6% to $8.24 billion, while increasing 1%
excluding currency effects. Analysts polled by Thomson Reuters
expected $8.4 billion in revenue for the quarter.
AmEx's revenue growth has fallen below its internal long-term
targets in the past couple of years as the company faces intense
competition from other card issuers and reductions in corporate
travel budgets.
Over all, American Express reported a profit of $2.02 billion,
or $2.10 a share, up from $1.47 billion, or $1.42 a share, a year
earlier. The latest results included a $677 million gain tied to
the sale of the Costco portfolio, partly offset by a $151 million
restructuring charge. Analysts expected $1.95 a share. Such
estimates typically exclude nonrecurring items.
Chief Executive Officer Kenneth Chenault said in a statement
that the quarter reflected strong credit quality and "lending
momentum," but said the company continued to feel the effects of
declines in the fees that it charges to merchants and the strong
dollar.
Total loans rose 11% to $61.1 billion, excluding the Costco and
JetBlue Airways Corp. co-brand cards loan portfolios, which were
both sold this year. American Express said it added 3 million new
proprietary cards during the quarter.
A 7% increase in card fees from platinum, gold and Delta cards
"is a clear indication that our value propositions continue to
resonate in the market place," Mr. Campbell said.
The firm said Wednesday that operating expenses declined 31% in
the quarter, though that metric was flat when excluding the Costco
portfolio sale and a restructuring charge.
Mr. Chenault said earlier this year that the company was "taking
significant actions to change the trajectory of our business" and
would cut $1 billion in costs. His comments came a year after AmEx
outlined plans to cut 4,000 jobs.
He added that the company plans to "continue spending at
elevated levels during the remainder of 2016 in order to capitalize
on the opportunities we see in a very competitive marketplace."
Notwithstanding the higher level of spending, he said AmEx expects
its results for the year to be at the high-end of its previous
guidance.
After the Federal Reserve didn't object to the company's capital
plan, American Express said June 29 that it planned to boost its
dividend by 10% and buy back up to $3.3 billion of stock through
the second quarter of 2017.
Visa Inc. and Capital One Financial Corp. are slated to report
quarterly results Thursday, while MasterCard Inc. is scheduled for
July 28. On Tuesday, Discover Financial Services said total loans
rose 4%, but credit-card spending was on the low of end of its
target range, partly due to aggressive cash-back promotions by
rivals.
Amex fell 75 cents, or $1.16, to $63.73 in after-hours
trading.
Write to Josh Beckerman at josh.beckerman@wsj.com and Robin
Sidel at robin.sidel@wsj.com
(END) Dow Jones Newswires
July 20, 2016 19:18 ET (23:18 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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