American Express Shares Jump After It Lifts 2016 Profit Forecast

October 20, 2016, 8:58 AM UTC
American Express - Most Admired 2016
STANFORD, CA - FEBRUARY 13: looks on during the White House Summit on Cybersecurity and Consumer Protection on February 13, 2015 in Stanford, California. U.S. President Barack Obama joined corporate CEOs to speak about the imporatance of cybersecurity during the White House Summit on Cybersecurity and Consumer Protection. (Photo by Justin Sullivan/Getty Images)
Photograph by Justin Sullivan — Getty Images

American Express raised its 2016 adjusted earnings forecast and reported better-than-expected third-quarter revenue on Wednesday, sending its shares up 5.8% in extended trading.

The credit card issuer, which has historically catered to upscale consumers, said it plans to increase spending on digital marketing, a strategy that helped it add 1.7 million new card members in the United States this quarter and expand globally.

The company raised its full-year adjusted earnings forecast to $5.90-$6.00 per share from $5.40-$5.70 and reaffirmed its 2017 forecast, driven by faster than expected progress on its cost cutting initiatives.

Analysts on average had expected the company to earn $5.50 per share in 2016, according to Thomson Reuters I/B/E/S.

AmEx (AXP), which cut total costs by about 3% this quarter, wants to save $1 billion by the end of 2017.

“The year-to-date progress gives us greater confidence to substantially increase our investment spending during the remainder of the year and, at the same time, raise our 2016 earnings guidance,” Chief Executive Officer Kenneth Chenault said in a statement.


AmEx said it would renew emphasis on its Platinum cards, typically used by wealthy consumers, and on programs meant for customers outside its traditional base.

The company has “successfully” shifted towards non co-brand card members who produce good returns although they have a slightly higher write-off rate, Chief Financial officer Jeffrey Campbell said on a conference call with analysts.

The company ended a lucrative co-branded contract with Costco Wholesale (COST) earlier this year. The portfolio accounted for about 8% of the spending on its cards in 2015.

Total revenue, net of interest expense, fell 5% to $7.77 billion in the three months ended Sept. 30, beating the average estimate for only the third time in the last two years..

Revenue, net of interest expense, rose 5% when Costco-related gains were excluded from the third quarter of 2015.

Net income attributable to common shareholders fell about 10% to $1.11 billion in the third quarter.

On a per share basis, AmEx earned $1.20, beating analysts’ average estimate of 97 cents per share on revenue of $7.71 billion.

AmEx shares, which have fallen 13.6% this year, were trading at $64.71 in extended trading on Wednesday.

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