American Express reported Friday that its profits dropped 14% in the second quarter as higher costs outweighed rising spending by cardholders on its network.
(AP) NEW YORK — American Express reported Friday that its profits dropped 14% in the second quarter as higher costs outweighed rising spending by cardholders on its network.
AmEx’s profit decreased from $2.28 billion, or $2.80 per share, in the same time last year to $1.96 billion, or $2.57 per share. According to FactSet, that still exceeded the $2.42 Wall Street was expecting, and shares increased 4% before the opening bell.
The New York corporation had a sharp increase in spending on its proprietary cards in the quarter, up 30% from a year earlier. The company ascribed the increase to increased spending on entertainment and travel. AmEx’s corporate cards saw a rise in spending as well, which is noteworthy given that businesses are still reluctant to spend money on travel because of the pandemic.
However, two distinct variables had a detrimental impact on the increase in card spending. In contrast to the $606 million the business discharged from its loan-loss reserves in the same period a year earlier, AmEx set aside $410 million in the quarter to cover potentially problematic loans. Banks and credit card businesses typically increase their loan-loss reserves when they anticipate more defaulted loans in the future.
The company’s expenses also increased significantly, primarily as a result of cardholders using their points to get perks related to travel. The statistics from AmEx appear to support claims that people have been using their points, which they accrued during the pandemic, to pay for expensive travel and lodging this summer.
AmEx increased its full-year revenue predictions despite the higher costs, and it stated that it is maintaining its full-year profit forecast of $9.25 to $9.65 per share.
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