Commentary

American Express On Fast Track With Better-Than-Expected Results

Continuing its rebound from several co-branding setbacks, and in spite of stiff competition and a marketplace filling with younger consumers unimpressed by its pedigree with traveler’s cheques, American Express yesterday said that its third-quarter profits had jumped 22% over the previous year. The New York City-based company has now posted six consecutive quarters of strong adjusted revenue growth, it reports

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“Higher card-member spending and borrowing helped American Express  post another strong quarter, even as expenses for its rewards program and other costs ticked up,” Maria Armental writes for the Wall Street Journal.

A few external factors weighed in its favor.

“Rising wages and a strong economy have fueled U.S. consumer spending, with consumer confidence last month reaching its highest level in 18 years. Payments networks like AmEx and Visa earn fees from merchants every time a consumer swipes a card issued by them. They also make revenue from interest paid by customers on overdue spending,” Reuter’s Diptendu Lahiri writes for StreetInsider.com.

But “the results came as American Express faces a much more competitive landscape than it did only a couple years ago. The Chase Sapphire Reserve Card by JPMorgan Chase became a major product in the premium credit card market, something that solely belonged to American Express with its Platinum Card,” the AP’s Ken Sweet points out for Yahoo Finance.

“In response, AmEx has been adding benefits to its cards, like a $15-a-month credit on Uber, or, with the recently revamped Gold Card, a $10-a-month credit on select dining outlets. Meanwhile, AmEx has been raising the annual fees on its cards to make up for the increased benefits -- something that appears not to be driving away new or existing customers. Total cards in force grew by 7% from a year earlier, despite the fee increases. … AmEx has also been encouraging its users to maintain a balance on their cards as well, collecting more interest income particularly as interest rates rise,” Sweet adds. 

The results beat Wall Street’s expectations for third quarter earnings, and the company's shares rose 1.7% in after-hours trading. Earnings per share were $1.88. “Wall Street had expected EPS of $1.77, as forecast by Refinitiv. Revenue was a record $10.1 billion, beating the expectation of $10.05 billion,” CNBC’s Liz Moyer reports. “Profit of $1.6 billion rose 22%.”

There was more good news: “The company said it expects full-year revenue to be up 9% to 10% and it raised its forecast 2018 earnings per share to a range of $7.30 to $7.40 from $6.90 to $7.30. Net income in global consumer services rose 15%, to $779 million. In commercial services, net income rose 20%, to $606 million,” Moyer adds.

Adding to the glee: the minutes released Wednesday from the September 25-26 Federal Open Market Committee Meeting “indicate the Fed is likely to continue raising interest rates. Higher rates should benefit companies like Amex by boosting revenue and profit,” Moyer points out.

“Our progress reflects the four strategic imperatives that we’re focused on,” said AmEx chairman and CEO Stephen J. Squeri,  who was named to take over from the long-time leader Kenneth Chenault exactly two years ago yesterday. Those imperatives are: “Expand leadership in the premium consumer space; build on our strong position in commercial payments; strengthen our global integrated network to provide unique value; make American Express an essential part of our customers’ digital lives.”

Addressing that last point, the company also announced an expanded strategic partnership for U.S. card member paying with PayPal and PayPal’s Venmo. 

The agreement will allow members to send money through PayPal or Venmo “and to use rewards points for purchases at PayPal merchants. Other opportunities for Amex card members include paying their Amex bill with PayPal or Venmo balance and adding Amex cards to the PayPal wallet directly from the Amex app,” reports Tomi Kilgore for MarketWatch.

Seeking Alpha published a transcript of the third-quarter earnings call with Squeri and two other AmEx executives here.

Our lede was considerably different in tone in January 2016 than it is this morning: “Faced with the imminent loss of its Costco customers and battered by the strong dollar and feisty competition, American Express yesterday said it would cut $1 billion in expenses over the next two years. Marketing and promotional costs are among the areas it will target.”

Hmmm. That last part seems to have had no major negative effect, eh?

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