American Express Profit Drops But Beats Expectations -- 3rd Update

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 [e-mail] and Lisa Beilfuss at [e-mail]

(END) Dow Jones Newswires

April 20, 2016 18:58 ET (22:58 GMT)

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