American Express Posts Higher Earnings for Q3 and Revenues on Target

October 20 00:00 2011

New York, October 20 ( – American Express (NYSE: AXP) reported higher-than-expected net earnings for Q3, but expenses grew faster than revenues. The company spent 24 percent more on its rewards program during the quarter, increasing the overall costs excluding interest and credit by 13 percent and outpacing its 9 percent revenue growth.

Investments in rewards programs could be boosting customer spending on American Express cards. Sanjay Sakhrani, an analyst with Keefe, Bruyette & Woods Inc. said that “The revenue growth was strong and credit did well, but expenses were up,” and added that “When they have excess earnings power, they tend to reinvest for the future, and I think that’s what you’re seeing this quarter.”

The company is planning to rein in expenses in the coming quarters and has focussed its expenditures in revenue-generating areas, as revealed by Chief Financial Officer Daniel Henry. The company said third-quarter net income rose to $1.2 billion, or $1.03 per share, from $1.1 billion, or 90 cents per share, a year ago, which was above analysts’ average estimate of earnings of 96 cents per share on a net basis.

Total revenue, net of interest expenses, rose 9 percent to $7.57 billion. American Express’s shares fell 1 percent to $45.65 in after-hours trading compared with their close of $46.13. However, membership rewards costs rose 24 percent to $1.57 billion, bringing total expenses to $5.61 billion, up 13 percent from the same quarter last year.