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AmEx shows the scars of a strong dollar and the Costco disaster

April 17, 2015, 8:09 AM UTC

American Express

American Express has gotten the word out that it's a solid place to work. As one of the 100 largest companies in the U.S. by revenue, it has little problem receiving applications for vacant jobs. In fact, it has about 13 times the number of applicants for its current existing jobs. Once there, AmEx employees tend to stay -- voluntary turnover is 9.5% and about 16% of its U.S. workforce has been at the company for two decades. AmEx has also made sure it has a diverse mix of executives up top -- women make up 33% of senior management.
Photo: Andrew Harrer/Bloomberg/Getty

American Express Co’s (AXP) woes continue. The world’s largest credit card issuer reported quarterly revenue that fell short of analysts’ estimates, hurt by a stronger dollar and the loss of several co-branded tie-ups.

AmEx said it was hurt, as expected, by the loss of deals such as that with Costco Wholesale Corp (COST) in Canada last year. AmEx’s exclusive agreement with Costco in the U.S., under which the retailer accepts only AmEx cards, is also set to end next March. The tie-up accounts for 8% of spending on AmEx cards.

“We are now seeing the full impact from the termination of this relationship,” a company executive said in a post-earnings conference call. Amex said in February the loss of the Costco contract in the U.S. would hurt earnings for the next two years.

Stiff competition has made the “co-branded” credit cards business increasingly tough across the industry due to wafer-thin margins. Such cards make up about a third of AmEx’s purchase volume.

That’s nowhere more true than in business travel, historically one of AmEx’s biggest strengths. The company also ended a co-branded deal with JetBlue Airways Corp (JBLU) in the first quarter.

Another predictable hit to business for a company that trades heavily on its global reach came from the dollar’s strength, which depressed the value of the earnings Amex gets from overseas.

Revenue from international operations, net of interest expense, fell 8% to $1.24 billion in the quarter ended March 31, accounting for about 16% of AmEx’s total revenue.

The dollar, which has gained about 22% in the past 12 months against a basket of major currencies, has been a spot of bother for U.S. multinational companies.

Total revenue, net of interest expense, fell 2.7% to $7.95 billion. Analysts had estimated revenue of $8.20 billion, according to Thomson Reuters I/B/E/S.

Sluggish revenue growth in recent years has forced the company to rein in costs. It plans to cut more than 4,000 jobs this year.

AmEx, which raised interest rates for a large number of its credit cards for the first time in five years in February, also lost a case filed by the U.S. government and 17 states, which accused it of violating antitrust laws by prohibiting merchants from steering consumers to use cheaper credit cards.

AmEx shares fell 1.4% to $79.80 after the bell on Thursday.