AmEx Climbs After Pledge That It Can Offset Higher Delta Costs
(Bloomberg) -- American Express Co. is sticking to its guidance for full-year profit, despite having to ante up to keep its largest card partner happy.
The credit-card giant said costs tied to marketing and business development will increase by $200 million this year as a result of its renewed card partnership with Delta Air Lines Inc. Even with the higher expenses, the firm reiterated that its 2019 adjusted earnings will be between $7.85 and $8.35 per share.
Ever since AmEx lost its partnership with Costco Wholesale Corp. in 2015, there’s been an increased focus on the risk tied to the company’s ability to nab renewals. Delta represents more than one-fifth of AmEx’s loans and 8 percent of spending on the firm’s network. AmEx Chief Executive Officer Steve Squeri tried to put any fears to rest on Thursday.
“We’re going to grow this thing so big, and we’ll be in each other’s DNA so much that come renewal time -- January 1, 2030 -- it’ll probably be much more of a formality to do this versus any protracted negotiation,” Squeri told investors on a conference call.
AmEx shares climbed 0.8 percent to $112.63 at 10:36 a.m. in New York. The stock has jumped 18 percent this year.
What Bloomberg Intelligence Says
“AmEx has revived growth to near its historical average in the high-single digits with product and service enhancements to its premium U.S. cards.”
--David Ritter, fintech analyst
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The firm’s first-quarter marketing and business development expenses rose 17 percent. Delta previously told investors that the new contract helped increase the airline’s first-quarter revenue by $100 million.
The higher development costs, along with a litigation charge, pushed expenses to $7.6 billion, topping the $7.3 billion average of analysts’ estimates compiled by Bloomberg.
Other key figures:
- The government shutdown and a delay in tax refunds may have weighed on AmEx cardholders. Spending on the firm’s cards increased 4 percent to $295.7 billion, missing the $304 billion average estimate.
- Net income dropped 5 percent to $1.55 billion, or $1.80 per share. Excluding litigation-related charges, the firm posted earnings of $2.01 per share, topping the $1.99 average of analyst estimates compiled by Bloomberg.
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