AP
American Express 2Q Profit Rises 12 Pct.
Monday July 23, 6:45 pm ET
By Madlen Read, AP Business Writer
American Express 2Q Profit Climbs 12 Percent on Record Card Member Spending

NEW YORK (AP) -- American Express Co., the nation's third-largest credit card brand, said Monday that record spending had fueled a 12 percent jump in profit.

The New York-based company also boosted the amount of money it has reserved for loan losses, as have many other financial services companies, to brace for an ongoing deterioration in credit quality.

Net income rose to $1.06 billion in the second quarter, or 88 cents per share, from $945 million, or 76 cents per share, in the same period a year ago.

Income from continuing operations also totaled 88 cents per share in the latest period, up from 78 cents per share a year ago.

The results were helped by a surge in overseas profit, and a $65 million tax benefit related to the treatment of card fee income in certain previous years.

Revenues including interest expense rose to $7.13 billion from $6.54 billion a year ago. Excluding interest expense, revenue rose to $8.20 billion from $7.29 billion.

The card and travel service company's results beat Wall Street forecasts. Analysts surveyed by Thomson Financial projected earnings of 86 cents per share on $7.49 billion of revenue.

"Continued growth in Cardmember spending and excellent credit quality generated strong earnings for the quarter," said Kenneth I. Chenault, chairman and chief executive, in a statement accompanying the report.

But in after-hours trading, the New York-based company's shares fell about 1 percent. The stock, which closed up 15 cents at $64.66 Monday, reached an all-time high of $65.89 last Thursday.

In the second quarter, the company raised its provisions for losses in its U.S. card business by 85 percent to $640 million, and its total loss provisions by 36 percent to $993 million.

The percent of credit-card loans written off on an annualized basis rose to 4.1 percent in the second quarter from 3.8 percent a year earlier.

Still, American Express tends to have lower delinquency rates than other credit-card companies because of its larger base of wealthy customers and tougher screening processes.

Customers spent $161.1 billion with their American Express cards in the second quarter, up 15 percent from the same period a year ago. In the United States customers spent $115.7 billion, up 13 percent, and customers outside the United States spent $45.4 billion, up 19 percent.

Total cards in force rose 10 percent to 82.2 million from last year's second quarter. Average basic cardmember spending rose 15 percent to $3,049 during the quarter.

Return on average equity was 37.5 percent, up from 29.8 percent last year.

The weakening U.S. dollar -- which has been hitting all-time lows against the euro and 26-year lows against the British pound -- has helped offset weakness in the U.S. for American Express, which has been seeing more sales from overseas.

The company's U.S. card services business posted second-quarter profit of $580 million, down 2 percent from $594 million a year ago. However, its international card and global commercial services reported a second-quarter profit jump of 22 percent to $277 million from $227 million last year.

Also, its global network and merchant services business saw profit soar 33 percent to $266 million from $200 million a year ago.

The company's discount revenue -- the fees it collects from merchants when cardholders make a purchase -- rose to $3.67 billion during the quarter from $3.36 billion last year. Fees from its cards rose to $500 million from $484 million, and travel commissions and fees climbed to $491 million from $437 million.

A year ago, American Express's second-quarter results had benefited from a $144 million gain related to the sale of some operations in Brazil, but had also been hurt by a $62 million charge involving adjustments made to the company's Membership Rewards reserve model outside the United States.