AmEx Profit Rises on Gain Tied to Costco Portfolio Sale -- 2nd Update

By Josh Beckerman 

American Express Co. said its second-quarter profit rose 37% on a big gain tied to the sale of its Costco cobrand card portfolio, lower expenses and higher card-member spending.

Revenue, however, slipped 0.6% to $8.24 billion, while increasing 1% excluding currency effects. Top-line growth at American Express has been in focus lately because it has fallen short of internal targets. Analysts polled by Thomson Reuters expected $8.4 billion in revenue for the quarter.

American Express has suffered from issues ranging from the loss of its 16-year exclusive relationship with warehouse-club retailer Costco Wholesale Corp., to heavy competition, to declines in corporate travel budgets.

Chief Executive Kenneth 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. That came a year after AmEx outlined plans to cut 4,000 jobs.

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 the quarter reflected strong credit quality and "lending momentum," but said the company continued to feel the effects of a lower merchant discount rate and the strong dollar.

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.

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.

American Express said it added 3 million new proprietary cards during the quarter.

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.

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.

Shares climbed 0.3% to $64.70 after hours.

Write to Josh Beckerman at [e-mail]

(END) Dow Jones Newswires

July 20, 2016 17:01 ET (21:01 GMT)

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