American Express Co. on Wednesday said its first-quarter profit rose 33 percent as its card users increased their spending and got better about paying their bills on time.
The New York-based card issuer said its net income attributable to common shareholders rose to $1.2 billion, or 97 cents per share, compared with $873 million, or 73 cents per share, in the year-ago quarter.
Revenue rose 7 percent to $7.03 billion, from $6.58 billion last year.
Analysts, on average, were expecting profit of 90 cents per share on $7 billion revenue, according to data provided by FactSet.
The profit jump reflects a 17 percent increase in American Express card usage and higher travel spending. Card users spent $187.9 billion during the quarter, compared with $161 billion last year.
U.S. consumer and small business spending rose 15 percent, Chief Financial Officer Daniel Henry said during a conference call to discuss results. Overseas, customer spending in Europe rose 10 percent; in Asia, 18percent and in Latin America and Canada, 16 percent.
That spike in customer spending "looked fantastic," said Stifel Nicolaus analyst Chris Brendler. "That was much better than expected."
Also contributing to the profit spike was that the company set aside just $97 million to cover lending written off as uncollectible. That was down 90 percent compared with $943 million in the year-ago period, reflecting a sharp improvement in customer payment habits. Henry said write-offs in the first quarter were $541 million, down about $500 million from the first quarter of 2010.
Henry attributed part of the improvement to the nature of the customers American Express is taking on in the current climate. The company is not offering low temporary rates for balance transfers, which reduces the potential for attracting risky customers. New customers tend to be people who use their cards frequently but pay their balances off each month, rather than carrying a month-to-month balance. And overall, customers remain more likely to reduce debt.
"How customer behavior will change over the next 24 months, we'll have to wait and see," he said.
American Express runs its own network to process transactions in addition to issuing cards, unlike most competitors, which do one or the other. That allows the company to earn money both by charging fees to merchants for handling purchases and by charging interest and fees to consumers.
The company, a component of the Dow Jones industrial average, also has the lowest default and late payment rates in the card industry. That gives it the ability to reinvest in its business, Brendler said.
In fact, expenses rose 19 percent to $5.2 billion from $4.37 billion last year.
The figure includes rewards expenses, which rose 30 percent to $1.58 billion. Brendler said the company's high level of spending on rewards is a concern for investors, and may have contributed to the stock's initial decline in late trading.
Analysts questioned Henry about rewards spending during the conference call.
The CFO said rewards redemption grows as customers use their cards more, which drives costs higher. The costs per point can also fluctuate. He noted the company can adjust expenses by making decisions about its rewards programs, and expects to do so in the future.
Chairman and CEO Kenneth I. Chenault in a statement said Amex's stepped-up spending helped the company take advantage of opportunities in the early stages of the economic recovery. Among the moves the company made during the quarter was the introduction of a digital payments platform called Serve that is aimed at attracting customers beyond the affluent base that uses American Express cards.
Chenault said the company plans to slow the growth of operating expenses toward the end of this year and into next.
Shares at first slipped in afterhours trading but recovered to remain even with the regular session close of $47.