American Express 2Q profit grows 5 percent

AP News
|
Posted: Jul 17, 2013 5:16 PM

American Express said Wednesday that its net income grew 5 percent in the second quarter as cardholder spending increased.

The New York-based company's latest earnings beat Wall Street expectations, but revenue fell short. Shares slipped more than 1 percent in aftermarket trading.

Spending by holders of American Express cards grew 7 percent during the April-June period, reflecting gains in the U.S. and abroad. The credit card issuer's income from interest and fees increased.

Chairman and CEO Kenneth Chenault touted the company's profit for the quarter, noting its growth despite a global economy that remains "uneven."

American Express cardholders tend to be more affluent than other credit card users, which is one reason the company has done well as the nation's economy has gradually improved since the recession.

This year, the economy is showing more robust signs of growth, with employers having added an average 202,000 jobs the past six months, up from 180,000 in the previous six. The housing market is also gaining strength. And consumer confidence last month hit the highest level since January 2008, according to the Conference Board.

That's made consumers feel wealthier and more willing to spend — often using credit cards to do so.

Unlike Visa and MasterCard, which only process transactions, American Express issues its own cards. When cardholders charge more on their Amex cards, the company earns even more in interest income and a variety of fees.

For the three months ended June 30, the company posted a profit of $1.41 billion, or $1.27 per share. That compares with earnings of $1.34 billion, or $1.15 per share, in the same period last year.

Revenue rose 4 percent, to $8.25 billion from about $8 billion.

Analysts polled by FactSet were expecting, on average, earnings of $1.22 per share on revenue of $8.3 billion.

Management noted that the company's restructuring efforts are on track and helping to keep expense growth contained.

The restructuring plan, which American Express unveiled in January, is meant to help the company improve how it caters to customers who increasingly turn to online and mobile devices to shop, pay bills and make travel plans.

As part of the overhaul, the company estimated it would eliminate 5,400 jobs this year, mostly from its travel business.

It also set a goal of keeping annual operating expense growth at less than 3 percent through the end of next year.

Expenses totaled $5.66 billion in the second quarter, up 1 percent from a year earlier. The company said increase was due to higher reward costs due to increased cardholder spending.

American Express shares ended regular trading down $1.47, or 1.9 percent, at $76.80. They gave up another $1.10, or 1.4 percent, to $75.70 in aftermarket trading. The stock is up 34 percent this year.