American Express said Wednesday that its net income grew 5 percent in the second quarter as cardholder spending increased, boosting revenue for the card issuer.
The latest earnings beat Wall Street expectations, but its 4 percent increase in revenue fell short. Shares of the New York-based company slipped more than 1 percent in aftermarket trading.
American Express cardholders tend to be more affluent than other credit card users, which is one reason the company has done well as the nation's economy has gradually improved since the recession.
This year, the economy is showing more robust signs of growth, with employers having added an average 202,000 jobs the past six months, up from 180,000 in the previous six. The housing market is also gaining strength. And consumer confidence last month hit the highest level since January 2008, according to the Conference Board.
That's made consumers feel wealthier and more willing to spend – often using credit cards to do so.
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 even more in interest income and a variety of fees.
Spending by holders of American Express cards grew 7 percent during the April-June period to $237.7 billion, reflecting gains in the U.S. and abroad. While cardholder loans grew 3 percent to $63.1 billion from a year earlier.
That helped drive overall revenue up 4 percent to $8.25 billion from about $8 billion – just shy of the $8.3 billion, on average, that Wall Street had been expecting, according to FactSet.
While revenue increased, it failed to reach American Express' own long-term revenue growth rate target of 8 percent, said James Shanahan, an analyst with Edward Jones.
"They haven't hit that 8 percent target in quite a while," he said, noting that the company's revenue growth has been running between 3.5 percent and 6 percent the past eight quarters.
"It's a company that's performing fine, but just not able to deliver the kind of growth that investors have come to expect," said Shanahan, who has a "Hold" rating on the stock.
During a conference call with Wall Street analysts, Dan Henry, American Express' chief financial officer, said that the general, slow growth of the economy remains a factor on consumer spending.
"Clearly, where the economy goes and consumer confidence will also be a significant factor whether that accelerates from here on out," he said.
For the three months ended June 30, the company posted a profit of $1.41 billion, or $1.27 per share. That compares with earnings of $1.34 billion, or $1.15 per share, in the same period last year.
Analysts polled by FactSet were expecting, on average, earnings of $1.22 per share.
Revenue in the U.S. card services division rose 5 percent, while international card services revenue was unchanged. Revenue at the company's global commercial services unit edged up 1 percent.
American Express' Global Network and Merchant Services unit saw revenue grow 5 percent on stronger merchant sales.
That unit, which licenses other institutions to issue AmEx cards, could be affected by new regulations that the European Union is reportedly considering, American Express said.
In a statement earlier in the day, the company addressed reports that the European Commission is considering placing a cap on the interchange fees charged by payment processors.
American Express said its business would not be significantly affected, noting that the discount rate it charges merchants and its consumer and corporate card businesses would not be covered under such regulations.
The company's Global Network business would be covered, however. That operation represents a relatively small portion of American Express' European business, the company said.
The EC is expected to release its draft proposals on the regulations next week.
American Express shares ended regular trading down $1.47, or 1.9 percent, at $76.80. They gave up another 80 cents, or 1 percent, to $76 in aftermarket trading following the release of the earnings report. The stock is up 34 percent this year.