American Express beats estimates for 1Q earnings and revenue as the well-off keep spending

NEW YORK, N.Y. – American Express said Wednesday that its cardholders charged 12 per cent more in the first three months of this year than a year earlier, and past-due accounts stayed at historic lows.

The figures helped the company beat Wall Street expectations for quarterly earnings and added to evidence that the well-off are feeling more comfortable about increasing their spending than other income groups.

The average Amex household brings in $97,000 a year, compared with $71,000 for credit card customers overall, according to industry research.

The company said it earned $1.25 billion, or $1.07 per share, in the first quarter, compared with analysts’ estimates of $1.01 per share. Earnings were 7 per cent higher than the same quarter a year earlier.

Revenue rose 8 per cent to $7.6 billion and also beat estimates.

Sales are growing much faster at luxury stores in the U.S. than for other retailers. American Express said its income in the U.S. soared 35 per cent to $752 million.

Unlike Visa and MasterCard, which only process transactions, American Express issues its own cards. When cardholders charge more on their AmEx plastic, the company earns more in fees.

In the first three months of the year, American Express tried to get its expenses in line and cut its marketing, promotion and rewards to cardholders by 14 per cent.

In recent quarters the company’s expenses had risen because it gave out more rewards to fend off increased competition from card issuers like JPMorgan Chase.

However, the cuts may not be permanent.

“We will adjust marketing spend depending on economic conditions,” said Daniel Henry, chief financial officer at Amex, in a conference call with analysts.

The credit card company wasn’t able to cut back on all of its expenses. Costs associated with services for card members increased 35 per cent, as it gave out credits for travel fees to platinum and Centurion cardholders and also gave lounge access to its Delta companion members.

Another area of concern was that commissions and fees related to travel, a mainstay at American Express, fell 1 per cent to $451 million.

In March, American Express also passed the Federal Reserve’s so-called stress test for financial companies. The company increased its quarterly dividend by 11 per cent to 20 cents per share. It plans to buy back $4 billion of its stock this year and $1 billion more in the first quarter of next year.

American Express kept aside $412 million for future losses, up from $97 million a year ago. Last year the credit card company’s reserves fell because it took a profit as loan losses dropped.

In after-hours trading, American Express shares fell 24 cents to $57.80.