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 (July 19, 2018).

American Express Co. raised its revenue forecast for the year, following a second consecutive quarter of strong results on higher card-member spending and loan growth.

The company on Wednesday said that given its financial performance for the first half of the year, it now expects revenue for the year to increase at least 9%, up from its earlier view of at least 8%. It maintained its view of earnings to be at the high end of $6.90 to $7.30 a share.

Second-quarter consolidated total revenues net of interest expense were a record $10 billion, up 9% from $9.2 billion a year ago, the highest level of growth for the company since the last financial crisis. The increase reflected ongoing growth in card spending and borrowing as well as more consumers signing up for AmEx cards that charge annual fees.

The second quarter marks the first full quarter for AmEx's new Chief Executive Stephen Squeri since he took over from longtime chief Kenneth Chenault in February. Mr. Squeri laid out the company's top priorities under his leadership on the earnings call, including expanding AmEx's position in the premium consumer-card market and in commercial payments. He added that in response to shareholders' requests to hear his views more often, he plans to join AmEx's earnings calls going forward, a departure from Mr. Chenault who often wasn't on the calls.

Overall, AmEx reported a 21% increase in second-quarter profit to $1.62 billion, or $1.84 a share. Revenue, net of interest expense, rose 9% to $10 billion.

Analysts surveyed by Thomson Reuters projected a profit of $1.82 a share on $9.84 billion in revenue.

Shares, which are up 3.7% this year, fell 3.4% to $99.50 in after-hours trading.

AmEx card loans surged as the company continues its efforts to ramp up lending. The company reported $75.4 billion in card-member loans, up 14% from a year prior. The company has been increasing lending as part of its strategy to fuel revenue growth.

There are signs that is becoming an expensive play. Loan-loss reserves for cards increased 39% from a year prior. AmEx's loan losses, which remain among the lowest in the industry, are on the rise. Its net write-off rate, including unpaid principal, interest and fees, reached 2.5% in the second quarter, up from 2.1% a year prior.

Card-member spending rose 10% in the most recent period, the company's third consecutive quarter of double-digit growth. AmEx also added 2.9 million cards.

Mr. Squeri on the earnings call touted the company's recent Supreme Court win: Wednesday's financial report is the first since the company won a key legal challenge on its policy of preventing retailers who accept AmEx cards from offering customers incentives to pay with cheaper cards. "Their ruling was a welcome end to a long legal battle," he said.

Discount revenue, which reflects the fees charged to merchants for accepting its cards, remained the company's largest revenue source at $6.19 billion, up 8% from the year earlier. While the company used to charge some of the highest so-called swipe fees, it has been lowering those costs as part of its effort to gain acceptance with more merchants and to reach parity with Visa and Mastercard acceptance.

Overall, expenses rose 7% from the year-ago period. Card-members rewards, the company's largest single expense that includes points redeemed for hotels and airfare, reached $2.43 billion in the second quarter, up 11% from the year-ago period.

On the premium front, the company said a significant share of people signing up for its Platinum card are millennials. Mr. Squeri added that AmEx has been expanding the number of its Centurion airport lounges that premium card members can access.

He also said the company plans to continue investing in the commercial payments sector, including the small-business segment. The company last month announced a new small-business credit card with Amazon.com Inc.

The company also said last month it would raise quarterly dividend payouts and buy back up to $3.4 billion of common shares through next year's second quarter after clearing the Federal Reserve's annual stress test. The company temporarily stopped buying back its stock after a roughly $2.6 billion charge tied to the U.S. tax overhaul pushed it into its first quarterly loss in a quarter-century.

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

(END) Dow Jones Newswires

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

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