American Express pushing growth Emphasis is shifting from cutting costs to increasing sales

August 19, 1996|By BLOOMBERG BUSINESS NEWS

NEW YORK -- American Express Co. is missing a crucial ingredient in its quest to become a "growth" company: rising sales.

For almost four years, the company has boosted the bottom line by firing people, spending less and buying back stock.

Now, its challenge is to wring more value from its venerable charge card and travel businesses.

Unless the company can make its products stand out in a crowded marketplace, Chairman and Chief Executive Harvey Golub could see his goal for the 146-year-old company -- sustained earnings growth of 12 percent to 15 percent -- slip away.

"You can just cut costs so much and buy so much stock," said Charles P. Mayer, who manages the $4 billion Invesco Industrial Income Fund. "If you're a growth company, you've got to grow revenues."

While Golub has cut $1.45 billion in expenses and fired 6,000 workers since 1992, the company's sales growth lags behind many banks and finance companies that issue credit cards.

Per-share earnings have improved, but that's also due to the company's repurchase of 53.9 million shares from the end of 1994 through June more than to any spike in sales.

First-half revenue grew just 6 percent from the same period last year, while earnings per share climbed 15 percent. The second quarter's revenue of $4.04 billion was up just 5 percent from the $3.83 billion taken in during the second quarter four years ago.

Management and industry analysts agree that the company has to compete better.

"We have not yet increased share, and our best competitors continue to grow at higher rates in the consumer credit card business," Golub said in a presentation to analysts and money managers on July 31.

The company has a plan.

"We have a broad strategy, it's focused, and now we have to demonstrate that we can generate the results," Vice Chairman Kenneth Chenault said. "Our vision for our business is to become the world's most respected service brand."

Specifically, he said the company plans to:

Issue more credit cards targeted to specific consumer groups, such as the co-branded Hilton Hotels and Delta Air Lines frequent flier cards or "lifestyle" cards such as the Golf Card.

Accelerate growth in cards aimed at businesses, such as the Corporate Card and the corporate Purchasing Card.

Try to sell banks in the United States and overseas on the benefits of issuing American Express cards.

Find ways to get a higher percentage of existing customers' charge volume, by offering them alternative cards with greater benefits.

Chenault said he expects that combining those steps with the company's American Express Financial Advisors (AEFA) business, which is growing at about a 17 percent annual rate, could turbocharge growth. AEFA sells low-risk financial plans, insurance, annuities and mutual funds.

There's no question that Minneapolis-based AEFA, formerly IDS Financial Services, is critical to the company's future.

If current trends persist, AEFA will eventually provide half of American Express' total earnings, up from about one-third now, said AEFA Chief Financial Officer Melinda Urion.

Still, that's at least partly a commentary on the lackluster growth rate at the Travel Related Services (TRS) unit.

Getting TRS' growth up to the level of AEFA's is easier said than done, investors and analysts said.

"Executing this part of the game plan is much more difficult than executing the restructuring, in my opinion," said A. G. Edwards & Sons analyst Jack Peirce. "It's very difficult for a financial services company to achieve what they're trying to achieve, which is to become a long-term growth company."

American Express changed its strategy after losing its way in the late 1980s and early 1990s. While American Express focused on troubles in its Shearson Lehman Brothers Group Inc. unit and other ill-fated acquisitions, the American Express Card's market share slipped.

Golub, who took over from James Robinson III after he resigned under pressure from stockholders dissatisfied with the company's performance, has won widespread support from investors.

But they know that he is seeking double-digit growth in a maturing and competitive credit card industry.

"He's come in and taken a very aggressive approach, no question, but he's got to play with the hand that he's been dealt," Mayer said.

The company fell to 12th in U.S. credit card volume last year from seventh in 1988 as competitors issued cards offering better incentives and lower fees.

It's still the No. 1 credit card issuer in terms of charge volume, but Citicorp, the leading Visa card issuer, could overtake it this year, said RAM Research Group President Robert McKinley.

And American Express' exclusive, $300-a-year Platinum card was challenged this spring by MBNA Inc., which started selling a platinum Visa card with no annual fee. First USA Inc., another credit card company, has since copied MBNA's product.

Chenault, who used to run the credit card business and continues to oversee it, acknowledges that the company faces obstacles.

"We have not over the past few years been as innovative as we need to grow market share," he said. That's changed over the past two years, he said.

Executives also insists that American Express' brand name can make up for the late start.

"We were four years late in responding to airline affinity cards," Chenault said. "Within a year, we had the largest airline affinity program."

"If you match value to a great brand, you've got an extremely powerful proposition in the marketplace."

Pub Date: 8/19/96

Baltimore Sun Articles
|
|
|
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.