Growth in cardholder spending helps lift American Express 4Q profit, revenue

LOS ANGELES, Calif. – American Express Co. said Thursday that its net income more than doubled in the fourth quarter, as cardholders boosted spending and borrowing during the holiday season.

The New York company’s prior-year quarter was also weighed by $594 million in restructuring charges and other one-time costs.

American Express said cardholder spending grew 8 per cent in the October-December quarter, which helped drive revenue gains for its U.S. and international card businesses.

CEO Kenneth I. Chenault said many consumers remain cautious about taking on additional debt, but noted the company saw a modest increase in cardholder loans.

American Express cardholders tend to be more affluent than other credit card users, which has helped bolster the company despite the slow economic recovery.

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

Despite early predictions of a lacklustre holiday season, U.S. retail sales rose 3.8 per cent from 2012 for November and December combined, according to the National Retail Federation’s analysis of federal figures. Increased retail spending tends to favour card issuers like American Express.

Steady job gains last fall and a surging stock market made Americans more optimistic about the economy and hiring. That helped boost consumer confidence and spending.

In a conference call with Wall Street analysts, Jeff Campbell, American Express’ chief financial officer, noted that the company’s billing and revenue accelerated in the second half of 2013 compared with the first half of the year.

“We think that’s a good trend heading into 2014,” he said.

American Express’ net income grew to $1.3 billion, or $1.21 per share, in the three months ended Dec. 31. That compares with net income of $630 million, or 56 cents per share, in the same period a year earlier.

Excluding the impact of one-time items including charges related to a merchant litigation settlement, American Express earned $1.25 per share, matching expectations of analysts polled by FactSet.

Revenue in the latest quarter rose 5 per cent, to $8.6 billion from $8.14 billion, in line with analysts’ expectations.

For 2013, net income increased to $5.31 billion, or $4.88 per share, from $4.43 billion, or $3.89 per share, in 2012. Full-year net revenue grew to roughly $33 billion from $31.6 billion the year before.

Shares in American Express ended regular trading down 47 cents at $87.78. The stock fell 53 cents to $87.25 in aftermarket trading.

Also on Thursday, rival card issuer and lender Capital One Financial reported a 2 per cent increase in fourth-quarter profit, but its income earned from loans declined.

The McLean, Va.-based company said its net income after paying preferred dividends was $842 million, or $1.45 per share, for the three months ended Dec. 31. That compares with net income of $825 million, or $1.41 per share, a year earlier. Revenue slipped 1 per cent, to $5.54 billion from $5.62 billion.

Analysts polled by FactSet, on average, expected earnings of $1.54 per share on $5.46 billion in revenue.

The company’s loans declined in its U.S. credit card and home loan divisions, while auto loans increased.

Capital One shares fell $1.47, or 2 per cent, to $74.97 in after-market trading. The stock ended regular trading down 59 cents at $76.44.