American Express Results Decline Less Than Expected -- 2nd Update

By AnnaMaria Andriotis and Anne Steele Features Dow Jones Newswires

American Express Co. posted lower first-quarter earnings and revenue versus a year earlier, hurt by the loss of its relationship with warehouse-club retailer Costco Wholesale Corp. Card-member spending climbed, though, and the results beat Wall Street expectations.

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AmEx reported a profit of $1.2 billion, or $1.34 a share, down from $1.4 billion, or $1.45 a share, a year earlier. Analysts, on average, were expecting $1.28 a share. The stock rose more than 2% after hours.

AmEx has suffered of late from issues ranging from the end of its 16-year exclusive deal with Costco, heavy competition and declines in corporate travel budgets. The latest earnings showed signs of stabilization, however.

The card issuer reported flat world-wide billed business growth, adjusted for currency fluctuations, from a year ago. That broke two consecutive quarters of declines during the last half of 2016. The company said that excluding the Costco card portfolio, this measure would have shown an 8% increases year over year.

AmEx also reiterated its 2017 outlook for earnings per share of $5.60 to $5.80.

"The last couple of years have been an important transition period, and we've entered 2017 stronger, more focused and more resilient," Chief Executive Kenneth Chenault said in a statement.

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Card-member spending grew by 8% during the quarter, excluding the impact of Costco in the year-earlier period and the effect of the stronger dollar.

The results gave some shareholders reason for optimism. "You kind of knew there was going to be two to three years of pain and if this is the kind of pain I have to put up with, we think we'll be very excited to own AmEx," said Bill Smead, chief executive of Smead Capital Management.

AmEx is in the midst of several key changes in its consumer-facing strategy. Best known for its charge cards that require customers to pay their bills in full every month, AmEx is expanding its credit-card portfolio to encourage more customers to carry a balance. The company is continuing to increase credit-card balances faster than the industry as it seeks to get more of its existing cardholders to sign up for loans or take on more card balances. Total loans increased 11% to $63.6 billion from a year earlier.

The company increased loan-loss reserves 23%, but credit didn't deteriorate markedly. Net write-offs including principal, interest and fees for its card-member loans increased to 2% in the first quarter from 1.8% a year ago.

Still, the company still has many hurdles to clear. Results again were dragged down by the end of the company's relationship with Costco. AmEx's revenue slipped 2.5% to $7.89 billion. Excluding the Costco business and the impact of a stronger dollar, revenue rose 6.6%. Analysts were looking for $7.75 billion, according to Thomson Reuters.

New risks have emerged. AmEx is facing more competition in the premium card sector -- especially from the popular Sapphire Reserve card from J.P. Morgan Chase & Co. -- and has recently ramped up rewards on its Platinum charge card. Analysts have expressed concern about what these increases could mean for the company's expenses

In the short term, though, AmEx has tried to keep those in check. Marketing and promotion expenses, which hit a record level late last year, fell to $700 million in the first quarter, down 4% from a year prior.

Total expenses ticked up slightly to $5.5 billion, the result of higher rewards expenses from recent upgrades the card issuer made to its card programs. Jeffrey Campbell, AmEx's finance chief, said on the earnings call that the company believes it is on track to remove $1 billion in total expenses by the end of 2017.

American Express's expenses ticked up slightly to $5.5 billion. An earlier version of this story misstated the figure. (April 19, 2017)

Write to AnnaMaria Andriotis at annamaria.andriotis@wsj.com and Anne Steele at Anne.Steele@wsj.com

(END) Dow Jones Newswires

April 19, 2017 18:46 ET (22:46 GMT)