U.S. Markets closed

AmEx warns of higher costs as it boosts rewards program, shares fall

By Bharath ManjeshR
FILE PHOTO: American Express logo and trading symbol are displayed on a screen at the NYSE in New York

By Bharath ManjeshR

(Reuters) - American Express Co <AXP.N> warned of higher operating costs this year as the credit card issuer spends heavily on rewards programs to attract customers in an increasingly crowded market, sending its shares down 2.5% on Friday.

AmEx cards, for long the preferred choice of affluent Americans, is now battling competition from JPMorgan Chase & Co's <JPM.N> Sapphire Reserve and Citigroup Inc's <C.N> Prestige Card.

AmEx has been ramping up its reward programs on its cards and striking partnership deals with a number of companies in a move to attract and retain customers. The company in 2018 renewed a partnership with Delta Air Lines Inc <DAL.N> that rewards customers with air miles.

Card reward expenses jumped 9% in the second quarter to $2.65 billion, compared with a 4% rise in the first quarter.

Total expenses rose 9.2% in the quarter ended June 30 from a year earlier, while total revenue rose 8.4% to $10.84 billion.

"Customer engagement cost has been and, I expect, will continue to grow a little faster than our revenues, and so that creates a little bit of margin compression," Chief Financial Officer Jeffrey Campbell said on a post-earnings call with analysts.

AmEx said its loan portfolio increased 10% to $83.2 billion in the quarter, while loan loss provisions grew by about 7%. The company said it now expects provisions to rise 20% this year, down from its earlier forecast of mid-20% range.

The company beat analysts' estimates for quarterly profit, helped by stronger credit card spending, which rose 7% in the United States - the company's biggest market - and 5% globally in the quarter.

The growth in card spending was helped by an economy that is growing steadily, but at a modest pace compared with last year, Chief Executive Officer Stephen Squeri said.

Net income rose 8.5% to $1.76 billion, or $2.07 per share. (https://reut.rs/32ys3vT)

Analysts had expected a profit of $2.04 per share, according to IBES data from Refinitiv.

(Reporting by Bharath Manjesh in Bengaluru; Editing by Sriraj Kalluvila and James Emmanuel)