American Express Company (NYSE:AXP) net income grew by 9% in the second quarter as the company benefited from increased spending by its cardholders and also by setting aside less money to cater for potential credit losses. The company also benefited a great deal from a one-time related gain from its business travel related business that substantially bolstered earnings. Earnings beat Wall Street estimates although the 5% increase in revenue fell short of Wall Street estimates.
Earnings per share growth of 13% in the quarter was also impressive, allowing the company to defend its position as a blue chip stock according to CNBC’s Jim Cramer. “I thought AMEX was incredible. I mean, we are looking just last quarter, it was 6% now you are at 9%. You have 13% earnings per share growth, so it is just a great blue chip stock… This stock is basically a core holding financials, this is not Armstrong by the justice department it is just doing a great job,” said Mr. Cramer.
Card holders spending rate grew by 9% during the second quarter reflecting strong gains both in the U.S and abroad. Increased spending helped drive the U.S card services revenue by 6% to $4.5 billion, international card services revenue was also on a rally growing by 7% to $1.4 billion. American Express Company (NYSE:AXP)’s Chief financial officer, Jeff Campbell, maintains that loan growth continues to be primarily impacted by greater spending on the cards and not any other significant change of the underwriting strategy.
American Express Company (NYSE:AXP)’s cardholders continue to be more affluent as compared to other credit card users considerably enabling the company to do well as the nation’s economy continues to show signs of improvements. Employers adding more than 230,000 jobs a month is a clear indication that the economy is slowly picking up, from the hard hit financial crisis of 2008.
Increased retail spending in the U.S is expected to help drive profits for credit card companies like American Express Company (NYSE:AXP). Single-digit growth spending by users in the recent past has forced the company to launch new products such as the ‘Fee-Free’ card that targets mass audience.