AXP American Express Company

By Josh Beckerman and Robin Sidel 

American Express Co. said its second-quarter profit rose 37% on a big gain tied to the sale of its Costco co-brand card portfolio, lower expenses and higher card-member spending.

The company said that other parts of its quarterly results were also affected by the end of its 16-year exclusive relationship with Costco Wholesale Corp., which is now only accepting Visa-branded credit cards. Among other things, AmEx said spending on its Costco cards slowed significantly before the partnership ended June 19.

AmEx is trying to replace the Costco-Amex cards with other AmEx products, especially because 70% of the spending on the Costco card takes place outside the warehouse club. The Costco cards represented roughly one of every 10 AmEx cards in circulation.

"We are pleased with the demand for our products and the success we have had with putting cards in the hands of Costco co-brand cardmembers," Jeffrey Campbell, AmEx's chief financial officer, said in a conference call to discuss earnings.

Revenue slipped 0.6% to $8.24 billion, while increasing 1% excluding currency effects. Analysts polled by Thomson Reuters expected $8.4 billion in revenue for the quarter.

AmEx's revenue growth has fallen below its internal long-term targets in the past couple of years as the company faces intense competition from other card issuers and reductions in corporate travel budgets.

Over all, American Express reported a profit of $2.02 billion, or $2.10 a share, up from $1.47 billion, or $1.42 a share, a year earlier. The latest results included a $677 million gain tied to the sale of the Costco portfolio, partly offset by a $151 million restructuring charge. Analysts expected $1.95 a share. Such estimates typically exclude nonrecurring items.

Chief Executive Officer Kenneth Chenault said in a statement that the quarter reflected strong credit quality and "lending momentum," but said the company continued to feel the effects of declines in the fees that it charges to merchants and the strong dollar.

Total loans rose 11% to $61.1 billion, excluding the Costco and JetBlue Airways Corp. co-brand cards loan portfolios, which were both sold this year. American Express said it added 3 million new proprietary cards during the quarter.

A 7% increase in card fees from platinum, gold and Delta cards "is a clear indication that our value propositions continue to resonate in the market place," Mr. Campbell said.

The firm said Wednesday that operating expenses declined 31% in the quarter, though that metric was flat when excluding the Costco portfolio sale and a restructuring charge.

Mr. Chenault said earlier this year that the company was "taking significant actions to change the trajectory of our business" and would cut $1 billion in costs. His comments came a year after AmEx outlined plans to cut 4,000 jobs.

He added that the company plans to "continue spending at elevated levels during the remainder of 2016 in order to capitalize on the opportunities we see in a very competitive marketplace." Notwithstanding the higher level of spending, he said AmEx expects its results for the year to be at the high-end of its previous guidance.

After the Federal Reserve didn't object to the company's capital plan, American Express said June 29 that it planned to boost its dividend by 10% and buy back up to $3.3 billion of stock through the second quarter of 2017.

Visa Inc. and Capital One Financial Corp. are slated to report quarterly results Thursday, while MasterCard Inc. is scheduled for July 28. On Tuesday, Discover Financial Services said total loans rose 4%, but credit-card spending was on the low of end of its target range, partly due to aggressive cash-back promotions by rivals.

Amex fell 75 cents, or $1.16, to $63.73 in after-hours trading.

Write to Josh Beckerman at josh.beckerman@wsj.com and Robin Sidel at robin.sidel@wsj.com

(END) Dow Jones Newswires

July 20, 2016 19:18 ET (23:18 GMT)

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