American Express Profit Rises Slightly as Spending Growth Slows
07/18/2012| 04:56pm US/Eastern
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By Andrew R. Johnson
American Express Co.'s (>> American Express Company) second-quarter profit was essentially flat as the pace of customer card spending slowed, though it continued to benefit from historically low loan losses.
The New York-based lender is considered a gauge for the optimism of affluent consumers because it issues credit and charge cards primarily to well-heeled customers who have sizeable disposable incomes and rarely miss their payments.
While spending growth slowed, American Express continued to benefit from low delinquency and charge-off rates, which are among the best in the credit-card industry.
Consumer, small business and corporate cardholder spending "remained healthy despite a very uneven economy," Ken Chenault, chairman and chief executive of American Express, said in a statement Wednesday. He added, total cardholder spending increased 7%, "slower than increases we've seen in the recent quarters, but it comes on top of a very strong performance a year ago."
American Express posted a profit of $1.34 billion, or $1.15 per share, up from $1.33 billion, or $1.10, a year earlier. Revenue, net of interest expense, was $7.97 billion, up 4.6% from a year earlier.
The earnings results beat estimates of analysts polled by Thomson Reuters, which were expecting earnings of $1.09 per share.
The company's shares closed down 0.7% at $58.29 Wednesday and fell an additional 0.9% in after-hours trading.
American Express is both a lender to customers and a processor of transactions, like its competitor Discover Financial Services (>> Discover Financial Services). Their larger rivals, Visa Inc. (V) and MasterCard Inc. (>> Mastercard Inc), only operate processing networks but partner with banks that issue cards and lend to consumers.
The company has continued to benefit from continuous improvement in loan quality, due in part to the propensity of its customers to avoid carrying balances month to month on their cards. While this means it earns little in the way of interest charged on loan balances, it generates a lot of income from fees that merchants pay as customers make purchases with their cards.
Concerns of a consumer spending slowdown have grown in recent months amid weak U.S. employment figures and a challenging economic environment in Europe. Such factors could further derail efforts by large credit-card issuers to grow their loan portfolios, which have been stagnant for most issuers.
Billed business, or spending on its cards, rose 6.7% to $221.6 billion, a slower growth rate than in quarters past.
On average, American Express customers spent $3,948 in the quarter, up from $3,767 a year earlier.
American Express's ending loans increased 5.2% to $52.5 billion in the quarter.
Write to Andrew R. Johnson at andrew.r.johnson@dowjones.com
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