American Express Co.’s net income grew 9 per cent in the second quarter, as spending by cardholders increased and the credit card issuer set aside less money to cover potential credit losses. A one-time gain related to the company’s business travel division also helped boost results.
The New York company’s latest earnings beat Wall Street’s expectations, but its 5 per cent increase in revenue fell short.
Spending by holders of American Express cards grew 9 per cent during the April-June period, reflecting gains in the U.S. and abroad. That helped drive U.S. card services revenue up 6 per cent to $4.5 billion, while international card services revenue rose 7 per cent to $1.4 billion.
Card loan balances grew 6 per cent in the U.S. from a year earlier and 5 per cent globally.
“Our loan growth continues to come primarily from greater spending by our card members and is not due to any significant change in our underwriting strategy,” Jeff Campbell, American Express’ chief financial officer, said during a conference call with Wall Street analysts.
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 adding an average of 230,000 jobs a month in the first half of the year, up from 194,000 a month in 2013. That’s helped knock down the unemployment rate to 6.1 per cent, the lowest in nearly six years.
Meanwhile, consumer spending at retail stores picked up an average of 0.5 per cent in the April-June quarter after a severe winter weighed on sales earlier this year.
Increased retail spending can help drive profits for credit card issuers like American Express. All told, U.S. credit card debt is up 2.5 per cent over the past year, according to the Federal Reserve.
This spring, American Express sold half of its stake in its business-travel division for $900 million to an investor group led by Certares International Bank. The move created a joint venture that operates the business under the American Express Global Business Travel name.
That transaction, which closed at the end of June, led to the one-time gain of $626 million during the quarter.
Non-interest revenue, including card and travel commission fees, rose 4 per cent to $7.34 billion.
American Express’ provision for losses declined to 6 per cent to $489 million.
Expenses edged higher as the company spent more on marketing and cardholder reward programs.
All told, American Express’ profit increased to $1.52 billion, or $1.43 per share, from $1.39 billion, or $1.27 per share, in the same quarter a year earlier.
The average per-share estimate of analysts surveyed by Zacks Investment Research was for profit of $1.38.
The company said revenue rose 5 per cent to $8.66 billion from $8.25 billion in the same quarter a year earlier. Analysts expected $8.67 billion, according to Zacks.
American Express shares tacked on 17 cents to $91.88 in after-hours trading. The stock closed down 15 cents at $91.71 in regular trading Tuesday.