Stronger consumer spending, lower costs help boost 3Q profit, revenue for American Express

LOS ANGELES, Calif. – American Express Co. said Wednesday that its net income rose 1 per cent in the third quarter, aided by lower expenses and increased spending by the credit card issuer’s customers.

Spending by the company’s cardholders rose 8 per cent in the U.S. during the July-to-September quarter versus a year earlier. It increased 6 per cent globally.

The increased spending helped boost revenue 4 per cent. The company also benefited from lower operating costs.

Even so, the rate of growth in spending by the New York company’s cardholders actually slowed compared to a few months ago, reflecting a trend among major card issuers this year, CEO Kenneth Chenault said.

In the second quarter, American Express’ revenue grew 5 per cent from a year earlier.

The company’s provisions for loan losses jumped 92 per cent to $479 million from $249 million a year earlier, when write-offs and delinquencies were declining at a faster rate and American Express released a far bigger portion of its reserves set aside to cover bad loans.

In the latest quarter, the company’s reserve release totalled $88 million, compared to $427 million in the same period last year.

Still, another factor in the increased provision for losses in the third quarter: Cardholder loans are up 6 per cent from a year ago.

“Spending growth continues to be healthy despite the uneven economy,” said Dan Henry, American Express’ chief financial officer, during a conference call with Wall Street analysts.

Even as its customers spent more, some on charge cards that carry balances, they got better about keeping up with their debt payments.

Credit quality — an industry term for how well borrowers are keeping up with debt payments — remained at historically strong levels, the company said.

American Express’ delinquency rate was flat compared to the second quarter, and it continued to see declines in the rate of write-offs, Henry said.

Cards with no set spending limit and other high-end perks have helped American Express draw customers who are about a third more affluent than other credit card holders.

Those affluent shoppers have spent more freely in the years following the recession. They also have been less prone to let their balances go unpaid. The combination has helped drive American Express’ earnings.

For its latest quarter, American Express reported net income of $1.25 billion, or $1.09 per share, for the three months ended Sept. 30. That compares with net income of $1.24 billion, or $1.03 per share, in the same period last year.

Revenue rose 4 per cent to $7.86 billion from $7.57 billion.

Analysts polled by FactSet were expecting earnings of $1.09 per share on revenue of $7.9 billion.

American Express shares ended regular trading up 74 cents at $59.37. The stock fell 66 cents to $58.72 in aftermarket trading after the release of the earnings report.

The stock is up 25 per cent so far this year.