AXP American Express Company

By AnnaMaria Andriotis and Maria Armental 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (April 19, 2018).

American Express Co. reported a 31% increase in first-quarter profit, driven by a pickup in card holder spending and borrowing.

The company reported profit of $1.63 billion, or $1.86 a share. Revenue, net of interest expense, rose 12% to $9.72 billion. Analysts surveyed by FactSet had projected a profit of $1.71 a share on $9.13 billion in revenue.

The dollar amount of purchase transactions on AmEx cards increased 10% from a year prior, adjusting for foreign exchange, marking the biggest increase in billed business growth for the company since the third quarter of 2014.

The acceleration appears in large part to be the result of improved consumer sentiment. "There's clearly something going on with increased confidence and increased spending" in particular with more affluent customers, said Jeffrey Campbell, AmEx's finance chief, on the company's earnings call Wednesday.

The company raised its revenue growth guidance to at least 8% for 2018, up from a 7% to 8% range. It also said it expects earnings per share to be at the high end of the $6.90 to $7.30 range it previously stated.

AmEx is focusing on rebuilding its capital, which took a hit from charges related to the U.S. tax overhaul. A roughly $2.6 billion charge in the fourth quarter of 2017 pushed the company into its first quarterly loss in a quarter-century, and AmEx suspended share buybacks for the first half of the year. Quarterly dividends remain unchanged. Mr. Campbell, on Wednesday's call, said the company feels "confident that [it] will resume share repurchases in the second half of the year."

Shares, which have outperformed the market over the past 12 months with a 26% gain, rose 3.5% to $98.45 in after-hours trading.

AmEx changed chief executives in February after longtime chief Kenneth Chenault retired, handing over the reins to AmEx veteran Stephen Squeri. The company is continuing to pursue two of the bigger strategies put into motion under Mr. Chenault: boosting revenue by increasing lending to customers and separately lowering the fees it charges merchants when customers use their cards to pay for purchases.

On the merchant side, AmEx "discount" revenue from swipe fees increased 9% from a year prior to $5.9 billion even as its average swipe-fee rate fell 0.06 percentage point from a year prior to 2.37%. That is part of a broader effort under way at the company to gain more merchant acceptance and to close the gap it currently has with Visa and Mastercard.

The company continues to push into lending in the U.S. and abroad, a departure from its core focus on affluent consumers who pay their monthly bills in full. Card member loans totaled $72.8 billion world-wide, up 14% from a year prior and slightly down from the preceding quarter. Loan balances in the U.S. increased 13% from a year prior to $63.9 billion. That exceeded the rate at which credit card debt is rising nationwide. In February, total U.S. credit-card debt increased about 5.5% from a year prior, according to the latest data from the Federal Reserve.

Loan losses and the amount of money the company set aside to cover future losses both increased. Its global loan net write-off rate -- including principal, interest and fees -- edged up to 2.4% from 2.2% in the preceding quarter and 2.0% a year earlier. Its total loan loss provisions increased 35% from a year prior to $775 million. AmEx chief Mr. Squeri said in a company statement that "credit indicators are in line with our expectations."

Expenses rose 9% from the year-ago period, though they were 3% lower than the preceding quarter. AmEx expenses paid out as card-members rewards, which includes points redeemed for hotels and airfare, reached $2.35 billion, its largest single expense and up 3.8% from the fourth quarter of 2017.

An increase in lending should bode well for AmEx and other card issuers in a rising rate environment. Mr. Campbell, however, in discussing the company's floating rate debt, said on the earnings call that the company recently has seen compression in the spread between its funding rates and the prime rate, "which is putting more pressure on net interest yields than we had originally anticipated."

Write to AnnaMaria Andriotis at annamaria.andriotis@wsj.com and Maria Armental at maria.armental@wsj.com

(END) Dow Jones Newswires

April 19, 2018 02:47 ET (06:47 GMT)

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