Card Member Spending
and Revenue Performance Accelerate
New Card Acquisitions
and Credit Quality Remain Strong
American Express Company (NYSE:AXP) today reported
first-quarter net income of $1.2 billion, down 13 percent from $1.4
billion in the year-ago quarter, which included certain
subsequently discontinued cobrand partnerships. Diluted earnings
per share was $1.34, down 8 percent from $1.45 a year ago.
First-quarter consolidated total revenues net of interest
expense were $7.9 billion, down 2 percent from $8.1 billion a year
ago. That compared to a year-over-year decline of 4 percent in the
prior quarter. Excluding last year’s Costco-related business and
the impact of foreign exchange rates, adjusted revenues net of
interest expense grew 7 percent.1 That is up from a year-over-year
increase of 6 percent in the prior quarter.1 Those increases
primarily reflected higher adjusted Card Member spending and
adjusted net interest income.
Consolidated provisions for losses were $573 million, up 32
percent from $434 million a year ago. The increase primarily
reflected higher loans, receivables and write-offs.
Consolidated expenses were $5.5 billion, up 1 percent from a
year ago. The current quarter reflected higher rewards expenses
related to recent product enhancements. The prior year included a
benefit of $127 million ($79 million after-tax) from a gain on the
sale of the JetBlue cobrand portfolio and an $84 million ($55
million after-tax) restructuring charge.
The effective tax rate for the quarter was 32 percent, down from
35 percent a year ago, due largely to the geographic mix of
earnings and certain discrete tax items in the current quarter.
The company’s return on average equity (ROE) was 25.1 percent,
up from 23.6 percent a year ago.
“Our first quarter performance marks a good start to the
year with momentum in the consumer and commercial businesses in the
U.S. and in key markets internationally,” said Kenneth I. Chenault,
chairman and chief executive officer. “The results reflect many of
the investments we’ve been making to grow the business, plus
continued progress in reducing operating expenses.
“Card Member spending grew 8 percent, adjusted for changes in
foreign exchange rates and Costco-related business that was
included in the prior year. Loans were up 11 percent and credit
indicators remained best in class.
“We acquired 2.6 million new cards across our global issuing
businesses during the quarter and continued to broaden our reach
among millennials with an expanded merchant network and enhanced
benefits and services to earn a greater share of their wallet.
“The last couple of years have been an important transition
period, and we’ve entered 2017 stronger, more focused and more
resilient. There is still work to do, but our underlying
performance this quarter gives me added confidence in our ability
to deliver our 2017 EPS outlook of $5.60 -$5.80 and position
American Express for sustainable growth in the years ahead.”
Segment Results
U.S. Consumer Services reported first-quarter net income
of $469 million, down 32 percent from $694 million a year ago. The
year-ago period included Costco-related revenues and expenses.
Total revenues net of interest expense decreased 8 percent to
$3.0 billion, from $3.3 billion a year ago.
Provisions for losses totaled $294 million, up 55 percent from
$190 million a year ago. The increase primarily reflected higher
loans and write-offs.
Total expenses were $2.0 billion, up 1 percent from a year ago.
The year-ago quarter included Costco-related rewards, offset in
part by the above-mentioned JetBlue gain. Rewards expenses in the
current quarter included costs related to recent product
enhancements.
The effective tax rate was 33 percent compared to 36 percent a
year ago.
International Consumer and Network Services reported
first-quarter net income of $218 million, up 16 percent from $188
million a year ago.
Total revenues net of interest expense were $1.4 billion, up 5
percent (up 6 percent FX-adjusted2) from a year ago. The increase
primarily reflected higher Card Member spending, net card fees and
loans.
Provisions for losses totaled $66 million, down 7 percent from
$71 million a year ago.
Total expenses were $1.0 billion, up 3 percent (up 4 percent
FX-adjusted2) from a year ago. The increase primarily reflected
rewards costs, driven by higher Card Member spending.
The effective tax rate was 25 percent, compared to 26 percent a
year ago.
Global Commercial Services reported first-quarter net
income of $418 million, down 14 percent from $485 million a year
ago. The year-ago period included Costco-related revenues and
expenses.
Total revenues net of interest expense were $2.5 billion, up 3
percent from $2.4 billion a year ago, primarily reflecting higher
Card Member spending.
Provisions for losses totaled $208 million, up 30 percent from
$160 million a year ago. The increase primarily reflected higher
receivables, loans and write-offs, as well as a slight increase in
delinquencies.
Total expenses were $1.6 billion, up 10 percent from $1.5
billion a year ago. The increase primarily reflected higher rewards
expenses, largely driven by recent product enhancements and higher
Card Member spending.
The effective tax rate was 34 percent, down from 36 percent a
year ago.
Global Merchant Services reported first-quarter net
income of $363 million, up 2 percent from $357 million a year
ago.
Total revenues net of interest expense were $1.1 billion, down 2
percent from a year ago. The year-ago period included
Costco-related revenues.
Total expenses were $505 million, down 3 percent from $521
million a year ago. The decrease reflected lower marketing
spending.
The effective tax rate was 36 percent, down from 38 percent from
a year ago.
Corporate and Other reported first-quarter net loss of
$231 million compared with net loss of $298 million a year ago.
About American Express
American Express is a global services company, providing
customers with access to products, insights and experiences that
enrich lives and build business success. Learn more at
americanexpress.com, and connect with us on
facebook.com/americanexpress, instagram.com/americanexpress,
linkedin.com/company/american-express, twitter.com/americanexpress,
and youtube.com/americanexpress.
Key links to products, services and corporate responsibility
information: charge and credit cards, business credit cards, Plenti
rewards program, travel services, gift cards, prepaid cards,
merchant services, Accertify, corporate card, business travel, and
corporate responsibility.
This earnings release should be read in conjunction with the
Company’s statistical tables for the first-quarter 2017, available
on the American Express website at
http://ir.americanexpress.com and in a Form 8-K filed
today with the Securities and Exchange Commission.
An investor conference call will be held at 5:00 p.m. (ET) today
to discuss first-quarter earnings results. Live audio and
presentation slides for the investor conference call will be
available to the general public on the above-mentioned American
Express Investor Relations website. A replay of the conference call
will be available later today at the same website address.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING
STATEMENTS
This release includes forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995,
which are subject to risks and uncertainties. The forward-looking
statements, which address the Company’s expected business and
financial performance and which include management’s outlook for
2017, among other matters, contain words such as “believe,”
“expect,” “estimate,” “anticipate,” “intend,” “plan,” “aim,”
“will,” “may,” “should,” “could,” “would,” “likely” and similar
expressions. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date
on which they are made. The Company undertakes no obligation to
update or revise any forward-looking statements. Factors that could
cause actual results to differ materially from these
forward-looking statements, include, but are not limited to, the
following:
- the Company’s ability to achieve its
2017 earnings per common share outlook as well as the earnings
trajectory for 2017, which will depend in part on the following:
revenues growing consistently with current expectations, which
could be impacted by, among other things, weakening economic
conditions in the United States or internationally, a decline in
consumer confidence impacting the willingness and ability of Card
Members to sustain and grow spending, the strengthening of the U.S.
dollar, a greater erosion of the average discount rate than
expected, a greater impact on discount revenue from cash back and
cobrand partner and client incentive payments, more cautious
spending by large and global corporate Card Members and lower
spending on new cards acquired than estimated; the Company’s
success in addressing competitive pressures and implementing its
strategies and business initiatives, including growing profitable
spending from new and existing Card Members, increasing penetration
among middle market and small business clients, expanding the
Company’s international footprint and increasing merchant
acceptance; the level of spend in bonus categories on rewards-based
and/or cash-back cards and redemptions of Card Member rewards and
offers; the impact of any future contingencies, including, but not
limited to, litigation-related settlements, judgments or expenses,
impairments, the imposition of fines or civil money penalties, an
increase in Card Member reimbursements and changes in reserves;
write-downs of deferred tax assets as a result of tax law or other
changes; credit performance remaining consistent with current
expectations; continued growth of Card Member loans; the ability to
continue to realize benefits from restructuring actions and
operating leverage at levels consistent with current expectations;
the amount the Company spends on Card Member engagement and the
Company’s ability to drive growth from such investments; changes in
interest rates beyond current expectations (including the impact of
hedge ineffectiveness and potential deposit rate increases); the
impact of regulation and litigation, which could affect the
profitability of the Company’s business activities, limit the
Company’s ability to pursue business opportunities, require changes
to business practices or alter the Company’s relationships with
partners, merchants and Card Members; the Company’s tax rate being
in the 33-34% range, which could be impacted by, among other
things, the Company’s geographic mix of income being weighted more
to higher tax jurisdictions than expected, changes in tax laws and
regulation and unfavorable tax audits and other unanticipated tax
items; the impact of accounting changes and reclassifications; and
the Company’s ability to continue executing its share repurchase
program;
- changes in the substantial and
increasing worldwide competition in the payments industry,
including competitive pressure that may impact the prices charged
to merchants that accept American Express cards, competition for
cobrand relationships and the success of marketing, promotion or
rewards programs;
- the actual amount to be spent on
marketing and promotion, as well as the timing of any such
spending, which will be based in part on management’s assessment of
competitive opportunities; overall business performance;
contractual obligations with business partners and other fixed
costs and prior commitments; management’s ability to identify
attractive investment opportunities and make such investments,
which could be impacted by business, regulatory or legal
complexities; and the Company’s ability to realize efficiencies,
optimize investment spending and control expenses to fund such
spending;
- the Company’s rewards expense and cost
of Card Member services growing inconsistently from expectations,
which will depend in part on Card Member behavior as it relates to
their spending patterns and actual usage and redemption of rewards,
as well as the degree of interest of Card Members in the value
proposition offered by the Company; increasing competition, which
could result in greater rewards offerings; the Company’s ability to
enhance card products and services to make them attractive to Card
Members and to continue to expand the Company’s global lounge
collection; and the amount the Company spends on the promotion of
enhanced services and rewards categories and the success of such
promotion;
- the ability of the Company to reduce
its overall cost base by $1 billion on a run rate basis by the end
of 2017, which will depend in part on the timing and financial
impact of reengineering plans, which could be impacted by factors
such as the Company’s inability to mitigate the operational and
other risks posed by potential staff reductions, the Company’s
inability to develop and implement technology resources to realize
cost savings and underestimating hiring and other employee needs;
the ability of the Company to reduce annual operating expenses,
which could be impacted by, among other things, the factors
identified below; the ability of the Company to optimize marketing
and promotion expenses, which could be impacted by higher
advertising and Card Member acquisition costs, competitive
pressures that may require additional expenditures or limit the
Company’s ability to reduce costs and an inability to continue to
shift Card Member acquisition to digital channels; and the
availability of opportunities to invest at a higher level due to
favorable business results and changes in macroeconomic
conditions;
- the ability to reduce annual operating
expenses in 2017 as well as the trajectory for 2017, which could be
impacted by the need to increase significant categories of
operating expenses, such as consulting or professional fees,
including as a result of increased litigation, compliance or
regulatory-related costs or fraud costs; the ability of the Company
to develop, implement and achieve substantial benefits from
reengineering plans; higher than expected employee levels; the
impact of changes in foreign currency exchange rates on costs; the
payment of civil money penalties, disgorgement, restitution,
non-income tax assessments and litigation-related settlements;
impairments of goodwill or other assets; management’s decision to
increase or decrease spending in such areas as technology, business
and product development and sales forces depending on overall
business performance; greater than expected inflation; the
Company’s ability to balance expense control and investments in the
business; the impact of accounting changes and reclassifications;
and the level of M&A activity and related expenses;
- the Company’s delinquency and write-off
rates and growth of provision expense being higher than current
expectations, which will depend in part on changes in the level of
loan balances and delinquencies, mix of loan balances, loans and
receivables related to new Card Members and other borrowers
performing as expected, unemployment rates, the volume of
bankruptcies and recoveries of previously written-off loans;
- the Company’s ability to execute
against its lending strategy to grow loans, which may be affected
by increasing competition, brand perceptions and reputation, the
Company’s ability to manage risk in a growing Card Member loan
portfolio, and the behavior of Card Members and their actual
spending and borrowing patterns, which in turn may be driven by the
Company’s ability to issue new and enhanced card products, offer
attractive non-card lending products, capture a greater share of
existing Card Members’ spending and borrowings, reduce Card Member
attrition and attract new customers;
- the possibility that the Company will
not execute on its plans to significantly increase merchant
coverage, which will depend in part on the success of OptBlue
merchant acquirers in signing merchants to accept American Express,
which could be impacted by the pricing set by the merchant
acquirers, the value proposition offered to small merchants and the
efforts of OptBlue merchant acquirers to sign merchants for
American Express acceptance, as well as the awareness and
willingness of Card Members to use American Express cards at small
merchants and of those merchants to accept American Express
cards;
- the ability of the Company to capture
small business and middle market spending, which will depend in
part on the willingness and ability of companies to use credit and
charge cards for procurement and other business expenditures,
perceived or actual difficulties and costs related to setting up
card-based B2B payment platforms, the ability of the Company to
offer attractive value propositions and card products to potential
customers, competition, the Company’s ability to enhance and expand
its payment solutions, and the effectiveness of the Company’s
marketing and promotion of its corporate payment solutions and
small business card products to potential customers;
- the ability of the Company to grow
internationally, which could be impacted by regulation and business
practices, such as those favoring local competitors or prohibiting
or limiting foreign ownership of certain businesses, the Company’s
ability to partner with additional GNS issuers and the success of
GNS partners in acquiring Card Members and/or merchants, political
or economic instability, which could affect lending and other
commercial activities, the Company’s ability to tailor products and
services to make them attractive to local customers, and
competitors with more scale and experience and more established
relationships with relevant customers, regulators and industry
participants;
- the Company’s ability to attract and
retain Card Members as well as capture the spending and borrowings
of its customers, which will be impacted in part by competition,
brand perceptions (including perceptions related to merchant
coverage) and reputation and the ability of the Company to develop
and market value propositions that appeal to Card Members and new
customers and offer attractive services and rewards programs, which
will depend in part on ongoing investment in marketing and
promotion expenses, new product innovation and development, Card
Member acquisition efforts and enrollment processes, including
through digital channels, and infrastructure to support new
products, services and benefits;
- the erosion of the average discount
rate by a greater amount than anticipated, including as a result of
a greater shift of existing merchants into the OptBlue program,
changes in the mix of spending by location and industry, merchant
negotiations (including merchant incentives, concessions and
volume-related pricing discounts), competition, pricing regulation
(including regulation of competitors’ interchange rates in the
European Union and elsewhere) and other factors;
- changes affecting the ability or desire
of the Company to return capital to shareholders through dividends
and share repurchases, which will depend on factors such as
approval of the Company’s capital plans by its primary regulators,
the amount the Company spends on acquisitions of companies and the
Company’s results of operations and capital needs in any given
period;
- the Company’s deposit rates increasing
faster or slower than current expectations due to market pressures,
regulatory constraints or changes in interest rates, which could
affect the Company’s net interest yield;
- legal and regulatory developments,
including with regard to broad payment system regulatory regimes,
actions by the CFPB and other regulators and the stricter
regulation of financial institutions, which could require the
Company to make fundamental changes to many of its business
practices; exert further pressure on the average discount rate and
GNS volumes; result in increased costs related to regulatory
oversight, litigation-related settlements, judgments or expenses,
restitution to Card Members or the imposition of fines or civil
money penalties; materially affect capital or liquidity
requirements, results of operations, or ability to pay dividends or
repurchase of stock; or result in harm to the American Express
brand; and
- factors beyond the Company’s control
such as changes in global economic and business conditions,
consumer and business spending, the availability and cost of
capital, unemployment rates, geopolitical conditions (including
potential impacts resulting from the proposed exit of the U.K. from
the European Union), foreign currency rates and interest rates, as
well as fire, power loss, disruptions in telecommunications, severe
weather conditions, natural disasters, health pandemics, terrorism,
cyber attacks or fraud, all of which could significantly affect
spending on American Express cards, delinquency rates, loan
balances and results of operation or disrupt the Company’s global
network systems and ability to process transactions.
A further description of these uncertainties and other risks can
be found in the Company’s Annual Report on Form 10-K for the year
ended December 31, 2016 and the Company’s other reports filed with
the Securities and Exchange Commission.
1Adjusted revenues net of interest expense on an FX-adjusted
basis, a non-GAAP measure, excludes from prior-year results
estimated revenues from Costco in the United States, Costco U.S.
cobrand Card Members and other merchants for out-of-store spend on
the Costco cobrand card. Management believes adjusted revenues net
of interest expense is useful in evaluating the ongoing operating
performance of the company following the end of the Costco U.S.
relationship. See footnote 2 for an explanation of FX-adjusted
information and Appendix I for a reconciliation to total revenues
net of interest expense on a GAAP basis.
2 As reported in this release, FX-adjusted information assumes a
constant exchange rate between the periods being compared for
purposes of currency translations into U.S. dollars (i.e., assumes
the foreign exchange rates used to determine results for the three
months ended March 31, 2017 apply to the period(s) against which
such results are being compared). FX-adjusted revenues and expenses
constitute non-GAAP measures. Management believes the presentation
of information on an FX-adjusted basis is helpful to investors by
making it easier to compare the company’s performance in one period
to that of another period without the variability caused by
fluctuations in currency exchange rates.
American Express Company
(Preliminary) Appendix I
Reconciliations of Adjustments (Millions, except
percentages)
YOY % Change
YOY % Change
Q1'17 Q1'16 Q4'16 Q4'15
Adjusted Total Revenues Net of Interest Expense
Total revenues net of interest expense $ 7,889
$ 8,088 (2) $ 8,022 $
8,391 (4) Estimated Costco-related revenues
(A) - 662 -
757 Adjusted Total revenues net of interest expense
$ 7,889 $ 7,426 6 $
8,022 $ 7,634 5 FX-adjusted adjusted
Total revenues net of
interest expense (B)
$ 7,889 $ 7,401 7 $
8,022 $ 7,535 6
(A)
Represents estimated Discount revenue from
Costco in the U.S. for spend on American Express cards and from
other merchants for spend on the Costco cobrand card as well as
Other fees and commissions and Interest income from Costco cobrand
Card Members.
(B)
FX-adjusted information assumes a constant
exchange rate between the periods being compared for purposes of
currency translation into U.S. dollars (i.e. assumes the foreign
exchange rates used to determine results for Q1'17 apply to the
period(s) against which such results are being compared). The
Company believes the presentation of information on an FX-adjusted
basis is helpful to investors by making it easier to compare the
Company's performance in one period to that of another period
without the variability caused by fluctuations in currency exchange
rates.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170419006418/en/
Media:Marina H. Norville,
+1-212-640-2832marina.h.norville@aexp.comorInvestors/Analysts:Ken
Paukowits, +1-212-640-6348ken.f.paukowits@aexp.comorToby Willard,
+1-212-640-5574sherwood.s.willardjr@aexp.com
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