American Express Co. chip credit cards are arranged for a photograph in Washington, D.C., U.S. (Photographer: Andrew Harrer/Bloomberg)

AmEx Falls on Angst That Profit Fails to Keep Pace With Revenue

(Bloomberg) -- American Express Co. dropped the most in two months after saying it will spend more on marketing and retailer partnerships this year.

The credit-card lender’s shares fell after it said it expects full-year earnings to remain at the high end of a previously forecast range of $6.90 to $7.30 even as revenue increases more than anticipated.

Analysts had expected the New York-based firm to boost its profit forecast as consumers increased spending on its cards. AmEx did say revenue will increase by at least 9 percent this year, or 1 percentage point higher than its previous prediction.

“While we are pleased to see higher revenue guidance, we would like to see the higher revenue guidance cause higher EPS guidance,” Chris Donat, an analyst at Sandler O’Neill & Partners, said in a note to clients on Wednesday.

The extra revenue will help the world’s largest credit-card issuer by purchases as it invests more in its businesses, the company said. Chief Executive Officer Steve Squeri and Chief Financial Officer Jeff Campbell said Wednesday they’re is focused on expanding acceptance of AmEx cards and signing new co-branded credit-card partnerships.

“Our revenue strength is allowing us to both get to the high end of our guidance range, but also put some additional money to work” by spending on initiatives such as better rewards for customers and new co-brand programs, Campbell said on a conference call with analysts.

Higher Costs

Second-quarter expenses jumped 7 percent to $7.1 billion, fueled by an increase in marketing and business development costs. AmEx signed new card partnerships with Amazon.com Inc. and Wells Fargo & Co. during the period, which added to costs, Campbell said.

AmEx shares dropped 2.2 percent to $100.71 at 11:42 a.m. in New York after earlier falling 3.6 percent, the steepest intraday decline since May 29. The stock has advanced 1.3 percent this year.

The lender has cut prices in an effort to get more merchants to accept its cards and reach parity coverage with Visa Inc. and Mastercard Inc. by next year. That means customers will start seeing AmEx’s blue logo at smaller stores that have long held out because of the card’s higher fees. AmEx has warned the company’s discount rate, a measure of the fees it charges merchants, will decline by 5 to 6 basis points this year.

AmEx won a years-long legal battle in June when the U.S. Supreme Court threw out a lawsuit filed by the U.S. government and 11 states that accused it of thwarting competition by prohibiting merchants from steering customers to cards with lower fees.

Here’s a quick summary of key numbers from AmEx’s second-quarter results announced Wednesday:

  • Net income increased 21 percent to $1.62 billion, or $1.84 a share, from $1.3 billion, or $1.47, a year earlier. The average estimate of 27 analysts surveyed by Bloomberg was for adjusted profit of $1.83 a share.
  • Worldwide billed business, a measure of customer card spending, did jump 10 percent to $296.5 billion in the second quarter, topping analysts’ estimates of $294.1 billion.
  • The credit-card firm had to set aside $806 million to cover souring loans in the quarter. That was better than the $825 million average of 17 analyst estimates compiled by Bloomberg.
  • Revenue climbed 9 percent to $10 billion in the second quarter, just missing the $10.1 billion average of 21 analyst estimates compiled by Bloomberg.

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