American Express Co. (AXP:US), the biggest credit-card issuer by purchases, reported a second-quarter profit that beat analysts’ estimates as customer spending rose and the lender posted the industry’s lowest default rates.
Net income (AXP:US) from continuing operations increased 3.4 percent to $1.34 billion, or $1.15 a share, from $1.3 billion, or $1.10, a year earlier, the New York-based company said yesterday in a statement. That beat the $1.10 estimate of 24 analysts surveyed (AXP:US) by Bloomberg.
AmEx, led by Chief Executive Officer Kenneth I. Chenault, has relied on its base of affluent customers and drove more spending to its global payments network to boost profit even as U.S. retail sales cooled. The company also increased the dividend (AXP:US) and repurchased shares after Federal Reserve stress tests showed the lender was among the best-equipped of 19 banks examined to withstand a severe recession.
“Consumer, small-business and corporate cardmember spending, along with the business volumes generated by our network of bank partners, remained healthy despite a very uneven economy,” Chenault said in the statement.
Worldwide card spending, or billed business, rose 6.7 percent to $221.6 billion, American Express said in a financial supplement. Customer purchases averaged $3,948 per card, an increase of 4.8 percent from a year earlier, when AmEx had fewer cards outstanding. Total revenue advanced 4.6 percent to a $7.97 billion, according to the statement.
American Express slid 0.5 percent to $57.99 at 6:39 p.m. in extended trading in New York and had gained 24 percent this year through the close of regular trading yesterday, the third-best performance in the Dow Jones Industrial Average after Bank of America Corp. and Walt Disney Co.
Retail sales in the U.S., where AmEx gets about two-thirds of its revenue, fell for a third month in June as limited employment gains took a toll on consumers. The 0.5 percent drop followed a 0.2 percent decrease in May, according to Commerce Department figures released this week. The decline exceeded the most pessimistic forecast in a Bloomberg News survey that called for a median 0.2 percent gain in sales.
The growth in card spending at AmEx is “slower than the increases we’ve seen in the recent quarters,” Chenault said in the statement. “Given the uncertain economic outlook, we remained vigilant in managing discretionary expenses.”
The company repurchased 30 million shares at an average of $58.27 apiece in the second quarter and has spent $2 billion to buy back stock this year, half the amount in its capital plan for 2012, AmEx said. There were 1.14 billion shares outstanding as of June 30, a 4.5 percent decline from a year earlier.
Expenses rose 2.3 percent to $5.63 billion from a year earlier as the company reduced rewards program and marketing costs and pared compensation, AmEx said.
The July 16 retail-sales report prompted economists at Morgan Stanley, Goldman Sachs Group Inc. and Credit Suisse Group AG to cut forecasts for economic growth in the second quarter. A cooling job market is sapping the household spending that makes up about 70 percent of the economy, curbing sales at retailers such as Target Corp. and Macy’s Inc.
AmEx set aside $461 million for future losses, 29 percent more than the same period in 2011, the company said.
The lender accounted for 25 percent of $2.05 trillion in U.S. credit-card spending last year and almost a third of the industry’s $179.9 billion increase from 2010, according to the Nilson Report, an industry newsletter based in Carpinteria, California. New York-based JPMorgan Chase & Co. had the second- biggest share of spending with 18 percent.
Write-offs for loans AmEx deems uncollectible fell to 2 percent in June from 2.2 percent in May, the company said in a July 16 regulatory filing. Loans at least 30 days overdue, a signal of future defaults, held steady at 1.2 percent, the lowest of the six-biggest U.S. credit-card issuers.
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