NEW YORK, N.Y. – American Express’s first-quarter profits declined 8 per cent from a year earlier, as the company continues to spend heavily to retain customers being lured away by aggressive competitors.
The credit card company said Wednesday it earned a profit of $1.39 billion, or $1.45 a share, in the first quarter, after payments to preferred shareholders. That’s down from $1.51 billion, or $1.49 per share, in the same period a year earlier. The results exceeded Wall Street expectations, with the average estimate of 12 analysts surveyed by Zacks Investment Research was for earnings of $1.36 per share.
In prepared remarks, AmEx CEO and Chairman Kenneth Chenault said the quarter’s results “reflected strong, underlying growth in our lending portfolio, along with higher Card Member spending and fee income.”
AmEx continues to spend heavily on marketing and promotions to keep the customers it had under the JetBlue and Costco credit card programs. AmEx lost its exclusive contract with Costco early last year to Visa and Citigroup, which was a major blow to the company since it represented a sizeable chunk of AmEx’s total card spending and loans. The deal forced AmEx to sell its credit card portfolio to Citigroup, and Costco will be transitioning its credit card payment processing to Visa later this year.
Since then, the company has been trying to retain those customers by selling them new AmEx-branded cards. So while revenue at the company rose 2 per cent to $8.09 billion in the quarter, expenses rose 5 per cent to $5.47 billion.
Those efforts appear to be working, at least so far. The company added roughly 5.4 million new credit card accounts in the U.S. and globally compared to a year earlier. AmEx executives have said they will continue to spend heavily to keep those customers.
American Express customers spent $253.8 billion on their cards in the quarter, up 6 per cent adjusting for currency fluctuations. The amount spent on AmEx’s cards is a closely watched metric for AmEx, since the company makes most of its money from charging merchants a fee every time an AmEx card is used.
AmEx reaffirmed their full year guidance, saying it still expects to earn $5.40 to $5.70 a share in 2016 and at least $5.60 in 2017.
American Express shares jumped $2.38, or 3.7 per cent, in post-market trading to $67.44.