AmEx Rewards Costs Climb to Record as It Rolls Out New Cards

(Bloomberg) -- American Express Co. is learning how expensive it is to keep an airline happy.

• AmEx has been focused on rolling out new cards with many of its larger co-brand partners, and renewed its deal with its largest one, Delta Air Lines Inc., in April. That helped push spending on cardholder rewards to a record $2.65 billion in the second quarter, topping the $2.64 billion average of analysts’ estimates.

Key Insights

• The firm’s discount revenue -- the fees it collects from merchants each time a consumer swipes a card at checkout -- climbed 6% to $6.58 billion, falling short of analyst projections.
• The firm left its profit forecast for the year unchanged at $7.85 to $8.35 a share, and reaffirmed its projection that revenue will grow 8% to 10%. The company expects profit to be more in line with the middle of that guidance range, it said on a conference call.
• Customer spending on the firm’s cards swelled 5% to $311.7 billion in the second quarter, below the $317.2 billion average estimate. “This spending is occurring against the backdrop of an economy that is growing at a steady, but modest pace relative to 2018,” Chief Executive Officer Stephen Squeri said in the statement.

Market Reaction

• Shares slipped 0.8% to $127.36 at 9:32 a.m. in New York. They gained 33% this year through Thursday, outpacing the 18% increase in the S&P 500 Financials Index.

What Bloomberg Intelligence Says

“American Express revenue may rise 7-8% long term, our scenario analysis shows, driven by high-spending U.S. consumers and the ability to use its position as the dominant business-card issuer to boost B2B payments."
David Ritter, financials analyst
Click here to read the research.

Get More

• Read the full statement here.

To contact the reporters on this story: Elizabeth Rembert in New York at erembert@bloomberg.net;Jenny Surane in New York at jsurane4@bloomberg.net

To contact the editors responsible for this story: Michael J. Moore at mmoore55@bloomberg.net, Steve Dickson, Daniel Taub

©2019 Bloomberg L.P.