AmEx Boosts Revenue and Outlook by Attracting Smaller Businesses

(Bloomberg) -- American Express Co.’s quest to be accepted everywhere from the corner bodega to the nail salon down the street is paying off.

AmEx, long known for pitching its card to a more-affluent market, boosted its forecast for profit for the year as it trimmed fees to attract smaller businesses. Discount revenue, a measure of fees charged to merchants, surged 8 percent to $6.2 billion, topping analyst estimates.

Key Insights

• AmEx has cut fees to add more retailers to its network. Its discount rate -- a measure of the fees it charges merchants -- dropped 2 basis points to 2.38 percent. By next year, it’s hoping to gain parity coverage with Visa and Mastercard, which are each accepted at more than 10 million U.S. locations, compared with 9 million for AmEx.
• AmEx has long been the king of charge cards, which require customers to pay the full balance each month. Now, it’s encouraging customers to borrow more and has seen a surge in loan growth as a result. That’s forced the company to set aside more money to cover bad loans. Provisions during the quarter climbed 6 percent to $817 million, below the $946.5 million average of 17 analyst estimates compiled by Bloomberg.
• AmEx retooled its popular Platinum and Gold card portfolios in a bid for affluent millennial customers. It seems to be working: The firm said this month that Platinum changes led to a 50 percent year-over-year jump in new accounts and a 20 percent boost in spending. Rewards costs during the third quarter advanced 11 percent to $2.4 billion, in line with the average of three analyst estimates compiled by Bloomberg.

Market Reaction

• AmEx shares rose about 1 percent to $103.82 in extended trading in New York after the announcement. The stock had gained 3.6 percent this year through the close of regular trading, compared with the 5 percent decline of the S&P 500 Financials Index.

Know More

• Spending on the firm’s cards climbed 8 percent to $295 billion, just shy of the $297.8 billion average of three analyst estimates compiled by Bloomberg.
• The company said it now expects revenue to climb 9 to 10 percent this year and adjusted earnings to be $7.30 to $7.40 a share, compared with its previous forecast of $6.90 to $7.30.
• For more details on the company’s results, click here.

To contact the reporter on this story: Jenny Surane in New York at jsurane4@bloomberg.net

To contact the editors responsible for this story: Michael J. Moore at mmoore55@bloomberg.net, Dan Reichl, Peter Eichenbaum

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