AmEx Q3 net income slips 14%

Source: American Express

American Express Company (AXP) today reported third-quarter net income of $1.3 billion, down 14 percent from $1.5 billion a year ago. Diluted earnings per share was $1.24, down 11 percent from $1.40 a year ago.

Results for the quarter were significantly affected by higher spending on growth initiatives, earlier changes to certain renewed co-brand partnerships, and the stronger U.S. dollar.

Consolidated total revenues net of interest expense was $8.2 billion, down 1 percent from $8.3 billion a year ago. Excluding the impact of foreign exchange rates, adjusted revenues rose 3 percent.2 The increase primarily reflected continued growth in the loan portfolio and modestly higher Card Member spending.

Consolidated provisions for losses totaled $529 million, up 8 percent from $488 million a year ago, reflecting an addition to reserves in the current year compared to a reserve release a year ago.

Consolidated expenses totaled $5.7 billion, up 3 percent from $5.6 billion a year ago. On an FX-adjusted basis, consolidated expenses rose 7 percent, reflecting higher spending on growth initiatives, primarily for marketing and technology development.2 The increase was also driven by higher rewards and Card Member services costs due to higher Card Member spending volumes and the impact of certain previously renewed co-brand partnerships.

The effective tax rate was 35 percent, compared to 34 percent a year ago.

The company's return on average equity (ROE) was 26.8 percent, down from 28.8 percent a year ago.

“While overall results were in line with our 2015 financial outlook, the quarter reflected the headwinds and challenges that we have been dealing with throughout this year,” said Kenneth I. Chenault, chairman and chief executive officer. “Reported revenue and billed business levels were suppressed by a stronger U.S. dollar. In addition, the renewals and changes that we made earlier this year to some co-brand relationships also entailed some significant incremental expenses this quarter.

“Against the backdrop of a challenging environment and an uneven global economy, we continued to move forward with initiatives to build our business for the years ahead. With our Costco relationship set to end in the U.S. next year, we’re investing substantially more in marketing, incentives and technology to attract a range of new Card Members and additional spending across our network. We’re expanding card acceptance at an accelerated pace among smaller merchants and also added Sam’s Club, the eighth largest retailer in the U.S., to our network earlier this month. We’re broadening our relationships with Card Members to accommodate more of their borrowing needs, and our loan portfolio continued its steady growth this quarter.

“The flexibility to invest in these and other growth initiatives comes in part from our ongoing progress in containing operating expenses throughout the company. We also continue to benefit from a strong balance sheet that allows us to return a substantial portion of our earnings to shareholders through share repurchases and dividends.

“We continue to expect quarterly earnings performance to be more uneven than it has been historically as we move forward on initiatives to help ensure our organization is in position to return to growth and deliver on the multi-year financial outlook that we first shared in February of this year. Throughout this year, we have said that our full year 2015 outlook was for EPS to be flat to modestly down versus the prior year. Barring any contingencies, we now expect our full year 2015 EPS to be between $5.20 and $5.35. We believe our outlook to return to positive earnings per share growth in 2016 and within our target range of 12 to 15 percent in 2017 remains appropriate.”

Segment Results

U.S. Card Services reported third-quarter net income of $794 million, down 11 percent from $889 million a year ago.

Total revenues net of interest expense increased 5 percent to $4.7 billion, from $4.5 billion a year ago. The rise reflected higher net interest income from growth in the loan portfolio and an increase in Card Member spending.

Provisions for losses totaled $390 million, up 23 percent from $316 million a year ago. The increase reflected an addition to reserves in the current year compared to a reserve release a year ago.

Total expenses increased 11 percent to $3.1 billion from $2.8 billion a year ago. The rise reflected in part higher spending on growth initiatives, primarily within marketing and promotion and technology development. The increase was also driven by higher rewards and services costs due to higher Card Member spending volumes and the impact of certain previously renewed co-brand partnerships.

The effective tax rate for the quarter remained unchanged from a year ago at 37 percent.

International Card Services reported third-quarter net income of $89 million, down 37 percent from $142 million a year ago. The decline largely reflected a significant impact from a stronger U.S. dollar.

Total revenues net of interest expense were $1.2 billion, down 11 percent from $1.4 billion a year ago. On an FX-adjusted basis, revenues rose 4 percent, reflecting in part higher net card fees and an increase in revenues from the Loyalty Partner business.2

Total expenses were $1.0 billion, down 6 percent from $1.1 billion a year ago. On an FX-adjusted basis, expenses were up 4 percent, reflecting increased spending on growth initiatives, primarily within marketing.2

The effective tax rate was 15 percent compared to 19 percent a year ago.

Global Commercial Services reported third-quarter net income of $151 million, down 26 percent from $204 million a year ago.

Total revenues net of interest expense were $817 million, down 9 percent from $900 million a year ago. On an FX-adjusted basis, revenues declined 5 percent, primarily reflecting a year-ago gain on the sale of investment securities and lower discount revenue.2

Total expenses were $541 million, compared to $542 million a year ago. The quarter reflected expenses associated with technology development to support growth initiatives.

The effective tax rate was 37 percent, up from 34 percent a year ago.

Global Network & Merchant Services reported third-quarter net income of $462 million, up 8 percent from $427 million a year ago.

Total revenues net of interest expense were $1.4 billion, down 6 percent from $1.5 billion a year ago. On an FX-adjusted basis, revenues increased 1 percent, reflecting in part increased revenue from bank partners.2

Total expenses decreased 16 percent to $633 million, from $756 million a year ago, primarily reflecting a litigation reserve release associated with a recently rejected merchant class settlement.

The effective tax rate was 36 percent, unchanged from a year ago.

Corporate and Other reported third-quarter net loss of $230 million compared with net loss of $185 million a year ago. 

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