Bolstered by a resurgence in consumer spending and improving credit quality, American Express Co. on July 21 reported higher second-quarter income and revenues–and a steep increase in its marketing and rewards-program costs.
Customers during the first half of this year redeemed Amex’s Membership Rewards program points at near-record rates, reflecting recent rewards-program enhancements and “greater engagement” with customers, Dan Henry, Amex chief financial officer, told analysts during a conference call to discuss the quarter’s earnings.
Asked whether Amex has reached the point where it must fork out more funds to consumers in the form of rewards to maintain its market share and spending volume, Henry conceded that for many years “there has been a war for the premium end” in the credit and charge card industries, but Amex has managed to balance its rewards expenditures to achieve “the right level of profitability” and expects to win market share from competitors with its strategy.
Total worldwide billed business during the quarter ended June 30 reached $207 billion, up 18.1% from $175.3 billion a year earlier. The quarter was the strongest for billed business in the company’s history, Henry said.
Amex’s U.S. Card Services net income rose 28.9%, to $665 million from $516 million. Total revenues, net of interest expense, rose 5.6%, to $3.8 billion from $3.6 billion, driven by higher card spend but offset by lower interest income from Amex’s card-loan portfolio.
U.S. card loan-loss reserves during the quarter fell 56.1%, to $228 million from $519 million, as credit quality improved substantially. The net charge-off rate, including principal, interest and fees, was 3.5%, down 330 basis points from 6.8% a year earlier.
Total billed business for U.S. Card Services during the quarter was $106.8 billion, up 12.9% from $94.6 billion a year earlier.
Basic cards in force for the U.S. Card Services unit totaled 30.1 million, up 2% from 29.5 billion. U.S. basic cardholders each spent an average of $3,567 during the quarter, up 11.1% from $3,212. U.S. marketing, promotion and rewards expenses during the quarter rose 21.4%, to $1.7 billion from $1.4 billion.
The average discount rate declined two basis points, to 2.54% from 2.56%.
Amex’s international cards unit reported second-quarter net income of $161 million, up 3.9% from $155 million. Total revenues rose 27.3%, to $1.4 billion from $1.1 billion.
The company’s provision for international card-loan losses fell 13.3%, to $78 million from $90 million.
Basic cards in force in the International Card Services Unit stayed flat at 10.4 million. Holders of basic card accounts spent an average of $3,032 during the quarter, up 23.8% from $2,449. The net charge-off rate for the international cards unit was 3.6%, down 220 basis points from 5.8%.
Amex’s global commercial services reported net income of $177 million, up 58% from $112 million, on revenues of $1.2 billion, up 20% from $1 billion.
The global network and merchant services unit’s net income for the quarter was $324 million, up 24.1% from $261 million, on revenues of $1.2 billion, up 9.1% from $1.1 billion.
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