American Express Profit Declines on Higher Costs -- 2nd Update
21 April 2016 - 7:15AM
Dow Jones News
By Lisa Beilfuss
American Express Co. said its quarterly profit declined 6.5%
amid higher spending by the card company to overhaul its
business.
The results, however, topped Wall Street expectations and sent
shares up 3.8% in after-hours trading.
At the start of this year, Chief Executive Kenneth Chenault said
AmEx would take "significant actions" to change the trajectory of
its business after posting a slide in 2015 earnings and issuing a
bleak outlook for 2016. The company had a rough go last year, under
growing competitive pressure that was highlighted by the loss of
its 16-year exclusive relationship with warehouse-club retailer
Costco Wholesale Corp. That deal expired at the end of March.
Mr. Chenault on Wednesday said competition across the payments
industry remains strong, but he said AmEx's initiatives to grow its
card base helped investment spending rise "significantly." The
company added 3 million new cards during the quarter, and AmEx's
underlying loan portfolio grew 11%.
The company said card member spending rose 6%, but that was
partly offset by a lower merchant discount rate and higher costs
tied to cash-back rewards.
"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," Mr. Chenault said,
and he reaffirmed AmEx's previously issued forecasts for this year
and next.
AmEx is targeting $1 billion in expense cuts by 2017. In the
first quarter, the company booked an $84 million charge stemming
from the related restructuring efforts. Its expenses in the period
rose 4.9% to $5.47 billion,.
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.
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 per share on $8 billion in
revenue, according to Thomson Reuters.
Fellow card company Discover Financial Services has similarly
taken strides to improve its business after a rocky end of the
year, hurt by prolonged low interest rates and cautious consumer
spending. Earlier this week, Discover reported better-than-expected
first-quarter results as it made good on a promise to accelerate
loan growth.
Write to Lisa Beilfuss at lisa.beilfuss@wsj.com
(END) Dow Jones Newswires
April 20, 2016 17:00 ET (21:00 GMT)
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