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More Bad News For Amex

In an earnings report that missed Wall Street expectations, American Express said that its bottom line declined 16 percent from a year ago, reflecting the pressures of both a stronger U.S. dollar and higher expenses. In a nod to continued margin declines and competitive pressures, the payments giant also sliced its full year financial projections.

Earnings per share for the quarter that ended in September came in at $1.24, a sight below the Street at $1.31 and below the $1.40 seen last year.

Dominating the headlines, as has been the case recently, has been the breakdown and breakup of the company’s relationship with Costco, which had served as the biggest Amex co-branded card relationship. And though perhaps viewed as temporary, the continued strength in the dollar helped pressure the top line, and revenues were just below $8.2 billion, again below consensus and also below the $8.3 billion seen last year.

Expenses proved to be the doing of the September period, offsetting at least some growth in U.S. card spending (a measure itself offset by a slide outside the U.S., which was hit by the dollar). With the expenses in the quarter rising to $5.7 billion in the latest period, up from $5.6 billion a year ago, customer retention efforts bit into results.

Amex has been busy spending time and money in hopes of cementing cardholder relationships even as the Costco relationship ends early in 2016 — a deal that has been cited as being responsible for roughly 10 percent of the Amex cards in the field. In fact, other co-branded partnership renewals hit EPS by roughly 5 percent.

Flat spending showed two mixed trends, as the number of transactions grew by 7 percent but the actual amount slipped 3 percent, at least partly due to lower prices paid at the pump. Within the U.S., card services income was $794 million, down 11 percent year over year, with provisions of $390 million standing in stark contrast to a reserve release in 2014.

The aforementioned pressures will not abate, as implied by guidance for the full year of earnings between $5.20 to $5.35 a share, and that’s worse than the “flat to moderately down” previously offered commentary from management on the $5.56 a share earned last year. In the meantime, analyst consensus had the bottom line for 2015 pegged at $5.49. Management commentary pointed toward continued “uneven” quarterly performance even while growth is expected to return in 2016, with as much as 12 percent to 15 percent being “appropriate” in the year after that.

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