American Express said its third quarter profits jumped by 22 per cent from a year earlier, as the credit card giant benefited from a lower tax rate and increased spending on the company’s credit cards.
The New York-based company said it earned a profit of $1.65-billion, or $1.88 a share, which is up from $1.36-billion, or $1.51 a share, in the same period a year ago. The results beat analysts’ expectations, who were looking for AmEx to earn $1.77 a share, according to FactSet.
“We delivered strong results this quarter driven by higher card member spending, fee income and loans,” said Stephen Squeri, the company’s chairman and chief executive officer. Squeri took over AmEx early this year, when then CEO Kenneth Chenault retired.
American Express card users spent $294.7-billion on their cards globally last quarter, an 8 per cent jump from a year earlier. In the U.S., the company’s largest market, card user spending was up 10 per cent from a year earlier. AmEx takes a fee from merchants for each time their cards are used.
AmEx has also been encouraging its users to maintain a balance on their cards as well, collecting interest income. Total loans held by AmEx users were $77.6-billion in the quarter, up from $67.9-billion a year earlier. That helped contribute to a 20 per cent rise in interest revenue this quarter.
But that move into lending comes with a risk that some customers will be unable to repay their debts. The company’s net charge-off rate, or the percentage of loans AmEx sees as unrecoverable, creeped up to 2.5 per cent from 2.1 per cent a year earlier. That figure still remains among the lowest in the industry, but it has been moving higher or holding steady for several quarters now.
Like other large companies, AmEx also benefited from a lower tax rate this quarter, due to the Republican tax law that was enacted late last year. The amount that the company set aside to pay income taxes was down 2 per cent from a year earlier, even though AmEx’s revenues and profits grew.
AmEx shares were up 1.4 per cent to $104.25 in after-market trading.