American Express Co. shares dropped after the company walked back an ambitious cost-cutting goal because it’s spending more to attract new cardholders, arguing that consumers are holding up well against the pandemic’s economic toll.
The card company now expects to cut “a little bit” less than the $3 billion target set in April, Chief Financial Officer Jeff Campbell said Friday in an interview. Higher marketing and promotional costs left expenses down 14% in the third quarter, a smaller drop than analysts predicted.
“When the world looked like it was going to end in mid-April, we very appropriately said we’re going to make a plan to pull all discretionary spending out,” Campbell said. “We’re still very focused on cost control, but we have to balance that to make sure we make the right decisions to rebuild growth momentum.”
Higher-than-expected expenses, including a bevy of new perks and a $200 million campaign to encourage more spending at small businesses, led to earnings per share falling below some estimates. AmEx’s stock, which is down 18% this year, dropped 2.5% to $102.14 at 10:35 a.m. in New York.
Credit-card issuers have been struggling with whether to start spending again to acquire new customers, as the coronavirus pandemic sent unemployment soaring and forced consumers to stay home to stem the spread of the disease. But widespread forbearance programs and massive government stimulus programs have largely kept write-offs in check.
The percentage of AmEx’s customers who are 30 days past due on their loan payments dropped to 1.2% in the third quarter from 1.5% a year earlier, the New York-based company said in a statement.
That’s been an encouraging sign for AmEx, Campbell said, adding that the firm has also gotten better at targeting consumers and small businesses with offers for new cards.
“During times like this, probably the go-to move is to reduce marketing, but we don’t believe that’s true,” Chief Executive Officer Stephen Squeri said on a conference call with analysts. “The most important thing we can do is solidify our foundation.”
Squeri said he could have cut marketing costs by 20% and added 40 cents to earnings per share, which were $1.30 in the third quarter. That would have been “short-term and short-lived,” he said.
“What we’re focused on as a company is continuing to build this brand and build this company for the long term,” the CEO said.
Customers are also canceling their cards at a lower rate than last year even though they’re using fewer card perks. The firm set aside just $2 billion for rewards programs in the third quarter, a 23% drop from a year earlier.
AmEx — known for its travel perks and co-brand card partnerships with large airlines and hotel chains — saw spending on its cards fall 19% to $248.7 billion in the quarter, a smaller drop than analysts expected.
The company has long derived most spending on its cards from purchases outside the travel and entertainment sectors. In the third quarter, such purchases climbed 1% on AmEx’s proprietary cards.
“We’ve seen a steady recovery in our overall spending volumes since the lows of mid-April,” Squeri said. “Online consumer retail spending was particularly strong.”
(Updates with new spending starting in fourth paragraph.)