Updated from 2:46 p.m. EDT
reported a 14.5% increase in its second-quarter earnings Monday, exceeding Wall Street's expectations by a penny a share, largely because the financial services giant garnered higher fee revenue on money it manages for investors and because of increased usage of credit cards.
But shares of American Express fell 2 5/16, or 4%, to close at 56 15/16 Monday after trading at a 52-week high of 59 3/4 earlier in the session.
The stock sold off largely on profit-taking, according to Jennifer Scutti, an analyst at
. "The shares were very strong last week," when they gained 6%, she said. "I don't think there's anything more to it, certainly nothing fundamental." She rates American Express a strong buy and her firm has done no underwriting for the company.
For the second quarter ended June 30, net income rose to $740 million, or 54 cents a diluted share, from $646 million, or 47 cents a share, a year earlier. The consensus estimate of analysts polled by
First Call/Thomson Financial
was 53 cents.
Revenue rose 16% to $5.6 billion from $4.8 billion a year earlier. Its travel-related services unit posted a 17% revenue increase to $4.3 billion and its financial advisers unit posted an 18% increase to $1.1 billion, while the American Express bank/travelers check unit recorded only a 1% gain to $262 million.
"Across the board, there was lots and lots of strength, with indications of continued growth," Scutti said.
The travel-related services unit, which includes its credit card business, reported net income of $472 million, up from $411 million a year ago, benefiting from a 12% increase of cards used, to 5.5 million; a 5% increase in average spending per card member, to $2,085 and a 9% increase in billed business volume, to $74.5 billion. Also, return on equity was 31.2%, up from 30.5% in the first quarter and 28.8% in the year-earlier quarter.
The American Express financial advisers business, which reported net income of $275 million, up from $242 million a year ago, gained because of increases in sales of mutual funds, annuities and life and other insurance products year-over-year.
Meanwhile, the American Express bank/travelers check unit reported net income of $40 million, up from $38 million a year ago, because of greater commission and fee revenue. But the unit also experienced a decrease in net interest income because of higher financing costs.
Though the earnings report was strong overall, there were a few hiccups, here and there. There was a decline in portfolio yield to 7.4% from 7.8% last quarter and 9% in the same quarter last year. American Express also recorded an erosion in assets under management, down 1.1% to $286.2 million from $289.5 million the quarter before. But Scutti noted that some of the decline could be blamed on the "vagaries" of the second quarter, such as the payment of taxes.
Because the company is attempting to be more competitive in pricing, there was also a decrease in the average discount rate, the rate charged to merchants to use the American Express network, to 2.69% from 2.72% in the first quarter. "That may not seem like a big decrease," Scutti explained, "but the rate has been between 2.71% to 2.73% in the last three or four quarters. This is the first time it's fallen below 2.7%."