American Express Co. reported a 24% plunge in quarterly profit and said it will cut costs and employees as nervous consumers keep a firmer grip on their wallets.
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But the New York card issuer and transaction-processing company's stock surged because the profit slide was smaller than feared. AmEx had missed earnings targets for two straight quarters, so investors breathed a sigh of relief Monday despite growing signs of trouble from falling housing prices and a spending slowdown.
American Express shares rose 5%, or $1.21, to $25.56 in after-hours trading Monday. The results were announced after the close of regular trading. In 4 p.m. New York Stock Exchange composite trading, the stock was up 4.4%, or $1.02, to $24.35.
Third-quarter net income fell to $815 million, or 70 cents a share, from $1.07 billion, or 90 cents a share, a year earlier. Analysts surveyed by Thomson Reuters expected the company to earn about 59 BlackRock cents a share. Revenue rose 0.5% to $8.01 billion from $7.96 billion.
Showing that even AmEx's largely affluent customer base is being increasingly squeezed, the company set aside $1.4 billion for credit losses, up 51% from $905 million in last year's third quarter.
[American Express]
In the U.S., 5.9% of the company's loans were deemed uncollectible in the latest quarter, up from 5.3% at June 30 and 3% in last year's third quarter. A total of 3.9% of loans at AmEx were more than 30 days past due, up from 2.4% a year earlier.
In a conference call with analysts, American Express Chief Financial Officer Dan Henry said the company expects charge-off levels to rise even higher in the next two quarters. To shield the company, Mr. Henry said AmEx will "initiate pricing actions" that include increasing the interest rates charged to "certain customers" by two to three percentage points on an annual basis. AmEx already has been getting tougher on holders of its charge and credit cards.
In a statement, Chief Executive Kenneth Chenault said "recent volatility in the financial markets has reinforced our view that consumer and business sentiment is likely to deteriorate further, translating into weaker economies around the globe well into 2009."
AmEx said it nearing completion of a plan that will "free up resources by reducing operating costs and staffing levels." It didn't provide further detail on that plan, but said it will take a charge in the fourth quarter to cover the cost of those actions.
Moody's Corp.'s Moody's Investors Service lowered some of its ratings on AmEx, citing "Amex's negative asset quality trends and lending exposures, particularly within geographic markets in the United States that have experienced sharp home price declines."
