American Express warns of higher operating cost, shares slide

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American Express warns of higher operating cost, shares slide

American Express Co., the multinational financial service corporation founded back in 1850 at New York city, had cautioned investors about its spurring expenses on a post-earnings’ call on Friday, the 19th of July 2019, adding that the credit card issuer had invested heavily on reward card programs this year amid a highly clogged market atmosphere, which had now been weighing on its profit margins, sending its shares down by as much as 2.5 percent on Friday’s (July 19th) intra-day trading.

The New York-based credit card issuer, widely known as AmEx, had long been battling an intensifying competition from its US rivals reward cards such as Prestige card of Citigroup Inc. and Sapphire Reserve of JPMorgan Chase & Co.

Aside from that, the multinational card issuer had been bolstering its reward programs over the recent months to grapple with amped-up market pressures and striking partnership deals with a number of companies in order to attract more and more customers, latest among which had been a renewal of partnership with Delta Air Lines Inc.

that rewards customers with additional air miles. Nonetheless, according to American Express’s quarterly earnings’ report for Q2, 2019, revealed on Friday (July 19th), card reward costs had climbed more than 9 percent to $2.65 billion from a 4 percent rise during the first quarter of the year.

Besides, Amex had posted an 8.4 percent rise in its total revenue to $10.84 billion, while its entire expenses rose more than 9 percent during the quarter ended on June 30th. Citing that the financial service provider’s expenses on reward programs would likely to surpass its revenue in a near-term outlook, CFO of American Express Jeffrey Campbell said at a post-earnings’ call with the analysts, “Customer engagement cost has been and, I expect, will continue to grow a little faster than our revenues, and so that creates a little bit of margin compression”.

As an immediate response to the comments of Campbell, shares of Amex fell more than 2.64 percent during US morning trading hours on Friday (July 19th) and rounded off the day down by 2.79 percent to $124.82 per share despite an 8.5 percent rise of its net income to $1.76 billion or $2.07 per share, beating analysts’ estimate of a profit of $2.04 per share, IBES data from Refinitiv revealed.