Amex net income up 6% in Q1; revenues disappoint

Source: American Express Company

American Express Company (NYSE:AXP) today reported first-quarter net income of $1.5 billion, up 6 percent from $1.4 billion a year ago. Diluted earnings per share rose 11 percent to $1.48, from $1.33 a year ago.

“First quarter results showed solid core performance and continued progress in expanding the American Express franchise despite an impact from several of the headwinds we’re confronting”

Results for the quarter were negatively affected by the significant impact of a stronger U.S. dollar on international operations.

First-quarter consolidated total revenues net of interest expense decreased to $7.9 billion from $8.2 billion a year ago, down 3 percent (up 1 percent FX adjusted2). Excluding the business travel operations that were part of the company a year ago, adjusted revenues increased 5 percent on an FX adjusted basis3. That increase was driven by higher Card Member spending and higher net interest income.

Consolidated provisions for losses totaled $420 million, down 13 percent from $485 million a year ago. The decrease primarily reflected a larger reserve release this quarter compared to last year. Credit indicators continued to be at historically strong levels.

Consolidated expenses totaled $5.2 billion, down 5 percent (down 1 percent FX adjusted2) from $5.5 billion a year ago. Excluding business travel operations, adjusted expenses increased 5 percent on an FX adjusted basis3. That increase primarily reflected higher rewards costs and Card Member services, partially offset by lower operating expenses4.

The effective tax rate for the quarter was 34 percent, down from 35 percent a year ago.

The company's return on average equity (ROE) was 29.0 percent, up from 28.3 percent a year ago.

“First quarter results showed solid core performance and continued progress in expanding the American Express franchise despite an impact from several of the headwinds we’re confronting,” said Kenneth I. Chenault, chairman and chief executive officer.

“Underlying performance reflected some familiar themes: higher Card Member spending (3 percent globally, 7 percent on an FX adjusted basis); a modest increase in loans; credit metrics near their historic lows; disciplined cost controls; and a strong balance sheet that allows us to return substantial amounts of capital to shareholders. These results came against the negative impact of a sharply stronger U.S. dollar, an uneven global economy, and the long-term renewal of several cobrand relationships that provide us with lower initial economics than the prior agreements. We also felt the impact from ending our relationship with Costco Canada, which expired at year end.

“During the quarter, we announced the launch of a new loyalty coalition business in the U.S. This business, named Plenti, leverages the success of similar programs in our international markets that are building business for merchants and delivering rewards to more than 60 million participating customers. We also moved forward on initiatives that are gaining broader card acceptance among smaller merchants and aimed at capturing a greater share of U.S. consumers’ everyday spending.

“Separately, based on our strong outcome on the Federal Reserve’s annual stress test, we gained the flexibility to increase the quarterly dividend by 12 percent to 29 cents per share and repurchase up to $6.6 billion of common shares through second quarter of 2016.

“As previously reported, we expect full year 2015 earnings will be flat to modestly down year-over-year with the headwinds we’re facing and as we ramp up investments to help offset the impact from ending our relationship with Costco in the U.S. next year. Looking further ahead, we have a range of growth opportunities across the business and continue to be very positive about the moderate to long term outlook for our company.”

Segment Results

U.S. Card Services reported first-quarter net income of $934 million, up 7 percent from $876 million a year ago.

Total revenues net of interest expense increased 6 percent to $4.5 billion from $4.3 billion a year ago. The increase reflected a 7 percent rise in Card Member spending and higher net interest income.

Provisions for losses totaled $296 million, down 13 percent from $342 million a year ago. The decrease primarily reflected a larger reserve release this quarter than last year.

Total expenses increased 9 percent to $2.7 billion from $2.5 billion a year ago. The rise primarily reflected higher rewards and Card Member services expenses driven by increased Card Member spending volumes and additional costs related to renewing certain cobrand relationships.

The effective tax rate was 37 percent compared to 38 percent a year ago.

International Card Services reported first-quarter net income of $134 million, down 16 percent from $159 million a year ago. The decline reflected the impact of the stronger U.S. dollar.

Total revenues net of interest expense decreased 8 percent (up 4 percent FX adjusted2) to $1.2 billion.

Provisions for losses totaled $76 million, down 13 percent from $87 million a year ago.

Total expenses decreased 8 percent (up 1 percent FX adjusted2) to $1 billion. The decrease primarily reflected lower marketing, promotion and rewards costs.

The effective tax rate was 27 percent compared to 22 percent a year ago.

Global Commercial Services reported first-quarter net income of $180 million, down from $184 million a year ago. The decline reflected the impact of the stronger U.S. dollar.

Total revenues net of interest expense decreased 31 percent (27 percent FX adjusted2) to $827 billion from $1.2 billion. Year-ago revenues included the company’s business travel operations.

Total expenses decreased 42 percent (39 percent FX adjusted2) to $508 million from $871 million a year ago. Year-ago expenses included the company’s business travel operations.

Global Network & Merchant Services reported first-quarter net income of $444 million, flat from a year ago. Results were negatively impacted by the stronger U.S. dollar.

Total revenues net of interest expense decreased 2 percent (up 3 percent FX adjusted2) to $1.3 billion. The negative impact of foreign exchange rates was partially offset by an increase in global Card Member spending.

Total expenses decreased 2 percent to $635 million (up 2 percent FX adjusted2) from $647 million a year ago. The decrease reflected lower marketing, promotion and rewards costs in the current quarter.

Corporate and Other reported first-quarter net loss of $167 million, compared with net loss of $230 million in the year-ago period.

Full figures available here

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