American Express lifts only the floor of its adjusted profit guidance for the year

American Express raised its earnings guidance for the year, but only from below. It now expects adjusted earnings per share of $17.60 to $17.90, against a range of $17.30 to $17.90 that it set in January and kept in July. The GAAP range sits higher because it counts the gain on selling the company's stake in Global Business Travel Group, net of a restructuring charge. Strip those out and the top of the range is where it started the year, which puts the weight of the raise on the last three months.

The reason is arithmetic, calculated from the reported figures. Adjusted EPS for the first nine months came to $13.49, so the new range leaves $4.11 to $4.41 for the fourth quarter. The same quarter last year earned $3.53, the full-year figure less the nine-month one. Even the bottom of the range implies growth of about 16%, and the top about 25%, both faster than adjusted EPS grew last quarter or over the nine months.

The company's case for a faster finish rests on a cost it took on a year ago. When it refreshed the U.S. Platinum card, it raised the rewards and services it pays for on cardmembers' behalf, a line it calls variable customer engagement costs. On its January call it said those costs had stepped up to 45% of revenue in the fourth quarter because of the Platinum investment, and last quarter's results still name the refresh as a reason expenses rose. That makes last year's fourth quarter a heavier comparison for costs than the quarters before it.

Management says the step-up is now behind it. The chief financial officer said "we expect VCE growth to moderate significantly in Q4 as we fully lap the platinum refresh". On the revenue side, net card fees grew 17% last quarter excluding currency moves, faster than the quarter before, the pickup the company had guided to since January, when it said fee growth would exit the year in the high teens. Fees rising faster while the cost line slows is the route by which the same revenue growth could leave more profit.

The flat ceiling also reflects a choice made earlier in the year. In July the company lifted its revenue guidance but held the EPS range, putting the extra into growth. Its marketing guidance went from low single digits in January to mid-single digits in April and about 10% for the second half, and marketing spending rose 11% last quarter. Raising the floor now signals that the year has gone well enough to bank some of it, without lifting the top.

Last quarter's adjusted EPS carried a $0.29 discrete tax benefit and a $0.24 benefit from updated credit-reserve models, but also $0.51 of higher legal reserves, including the rest of the OCC penalty; the chief financial officer said the three, taken together, had no meaningful effect on adjusted EPS. The smaller average diluted share count is the lasting help.

The company's record on this kind of guidance is close. Last October its full-year range implied a fourth quarter of about $3.50 at the midpoint, calculated from its nine-month result, and it delivered $3.53. This year's range asks for more growth than that one did, from a quarter that already carried the refresh's costs.