Revenues Rise
9%
Full Year 2017 EPS
Guidance Raised to $5.80-$5.90
American Express Company (NYSE:AXP) today reported
third-quarter net income of $1.4 billion, up 19 percent from $1.1
billion a year ago. Diluted earnings per share was $1.50, up 25
percent from $1.20 a year ago.
(Millions, except percentages and per
share amounts)
Quarters Ended
September 30,
Percentage
Inc/(Dec)
Nine Months Ended
September 30,
Percentage
Inc/(Dec)
2017 2016
2017 2016 Total Revenues Net of
Interest Expense $ 8,436 $ 7,774 9
$ 24,632 $ 24,097 2 Net Income $
1,356 $ 1,142 19 $ 3,933 $ 4,583
(14 ) Earnings Per Common Share – Diluted:
Net Income Attributable to Common
Shareholders1
$ 1.50 $ 1.20 25 $ 4.30 $
4.76 (10 ) Average Diluted Common Shares Outstanding
881 923 (5 ) 892
943 (5 )
Third-quarter consolidated total revenues net of interest
expense were $8.4 billion, up 9 percent from $7.8 billion a year
ago. Excluding the impact of foreign exchange rates, adjusted
revenues net of interest expense grew 8 percent.2 Those increases
primarily reflected higher net interest income and Card Member
spending, partially offset by a lower discount rate.
Consolidated provisions for losses were $769 million, up 53
percent from $504 million a year ago. The rise primarily reflected
continued strong growth in the loan portfolio and an expected
increase in the lending write-off and delinquency rates.
Consolidated expenses were $5.8 billion, up 6 percent from $5.5
billion last year. The current quarter included higher rewards
expenses primarily related to product enhancements and an increase
in Card Member spending, partially offset by lower marketing costs.
Operating expenses were unchanged from a year ago, reflecting lower
technology-related costs, offset by asset impairments and
restructuring and other charges in the company’s U.S. Loyalty
Coalition and Prepaid businesses. Excluding the asset impairments
and other charges in the current year and restructuring charges in
both years, adjusted operating expenses declined 4 percent.3
The effective tax rate for the quarter was 26 percent, down from
34 percent a year ago, primarily due to the realization of certain
foreign tax credits in the current year and the geographic mix of
earnings.
“We are completing a two-year turnaround ahead of plan with
strong revenue and earnings growth across all of our business
segments,” said Kenneth I. Chenault, chairman and chief executive
officer. “We’ve added products and benefits, shown continued
strength in acquiring new customers, and expanded our merchant
network.
“Loan growth continued to be strong and credit metrics were
again in line with our expectations. We’ve contained operating
costs and reallocated a significant part of those savings to fund
many of the initiatives that are now driving growth across the
business. Throughout the turnaround, we’ve dealt effectively with
competitive challenges and redesigned our marketing, customer
service and risk management capabilities for the digital age.
“We’re starting a new chapter from a position of strength. Based
on the momentum in the business, we now expect full year 2017 EPS
of $5.80 to $5.90. That’s up from our earlier outlook of $5.60 to
$5.80.”
Segment Results
U.S. Consumer Services reported third-quarter net income
of $475 million, up 18 percent from $401 million a year ago.
Total revenues net of interest expense were $3.3 billion, up 13
percent from $2.9 billion a year ago. The increase primarily
reflected higher net interest income and Card Member spending.
Provisions for losses totaled $459 million, up 67 percent from
$275 million a year ago. The rise primarily reflected strong growth
in the loan portfolio and an expected increase in the lending
write-off and delinquency rates.
Total expenses were $2.1 billion, up 6 percent from $2.0 billion
a year ago. The current quarter reflected higher rewards expenses
related to product enhancements and an increase in Card Member
spending, partially offset by lower technology-related costs and a
decline in marketing expenses.
The effective tax rate was 32 percent, down from 35 percent a
year ago.
International Consumer and Network Services reported
third-quarter net income of $286 million, up 85 percent from $155
million a year ago.
Total revenues net of interest expense were $1.5 billion, up 7
percent (up 6 percent FX-adjusted2) from $1.4 billion a year ago.
The increase primarily reflected higher Card Member spending and
net interest income.
Provisions for losses totaled $106 million, up 26 percent from
$84 million a year ago. The rise primarily reflected continued
strong growth in the loan portfolio and an expected increase in the
lending write-off rate.
Total expenses were $1.1 billion, down 2 percent (down 3 percent
FX-adjusted2) from a year ago. The decrease primarily reflected
lower marketing and employee compensation expenses, partially
offset by higher rewards costs.
The effective tax rate was 7 percent, down from 25 percent a
year ago, due largely to the realization of certain foreign tax
credits in the current year and the geographic mix of earnings.
Global Commercial Services reported third-quarter net
income of $529 million, up 14 percent from $466 million a year
ago.
Total revenues net of interest expense were $2.6 billion, up 6
percent from $2.4 billion a year ago. The increase primarily
reflected higher Card Member spending and net interest income.
Provisions for losses totaled $194 million, up 45 percent from
$134 million a year ago. The increase primarily reflected strong
growth in the loan portfolio and an expected increase in the
lending write-off rate.
Total expenses were $1.6 billion, up 3 percent from a year ago.
The current quarter reflected higher rewards expenses related to
product enhancements and an increase in Card Member spending,
partially offset by lower technology-related and marketing
expenses.
The effective tax rate was 31 percent, down from 36 percent a
year ago, due largely to the geographic mix of earnings.
Global Merchant Services reported third-quarter net
income of $368 million, up 3 percent from $359 million a year
ago.
Total revenues net of interest expense were $1.2 billion, up 4
percent from $1.1 billion a year ago. The increase primarily
reflected higher Card Member spending, partially offset by a lower
discount rate.
Total expenses were $628 million, up 20 percent from $525
million a year ago. The increase primarily reflected a portion of
the previously-mentioned asset impairments and restructuring and
other charges.
The effective tax rate was 29 percent, down from 37 percent a
year ago, due largely to the realization of certain foreign tax
credits in the current year.
Corporate and Other reported third-quarter net loss of
$302 million compared with net loss of $239 million a year ago,
reflecting a portion of the previously-mentioned asset impairments
and restructuring charges.
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 third-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 third-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, which will depend in part
on the following: revenues growing consistently with current
expectations, which could be impacted by, among other things, the
factors identified in the subsequent bullet; credit performance
remaining consistent with current expectations; 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, the
imposition of fines or civil money penalties, an increase in Card
Member reimbursements, restructurings, impairments and changes in
reserves; 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
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 remaining in line with current expectations,
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;
write-downs of deferred tax assets as a result of tax law or other
changes; the impact of accounting changes and reclassifications;
and the Company’s ability to continue executing its share
repurchase program;
- the ability of the Company to grow
revenues net of interest expense, 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, continued growth of Card Member loans, a greater erosion
of the average discount rate than expected, the strengthening of
the U.S. dollar, 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, the
willingness of Card Members to pay higher card fees, and lower
spending on new cards acquired than estimated; and will depend on
factors such as the Company’s success in addressing competitive
pressures and implementing its strategies and business initiatives,
including growing profitable spending from existing and new Card
Members, increasing penetration among middle market and small
business clients, expanding the Company’s international footprint
and increasing merchant acceptance;
- 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 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 the amount the Company spends on the promotion of
enhanced services and rewards categories and the success of such
promotion;
- the actual amount to be spent on
marketing and promotion, which will be based in part on
management’s assessment of competitive opportunities; overall
business performance and changes in macroeconomic conditions; the
actual amount of advertising and Card Member acquisition costs;
competitive pressures that may require additional expenditures; the
Company’s ability to continue to shift Card Member acquisition to
digital channels; 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 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 the factors
identified in the preceding bullet;
- the ability to reduce annual operating
expenses, 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;
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 provisions for losses 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, credit performance of new and enhanced
lending products, 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 growth in net interest income
slowing more than expected, which will be impacted by the growth
and mix of Card Member and other loans, which will depend in part
on the factors identified in the preceding bullet, and the
Company’s net interest yield on Card Member loans, which will be
influenced by, among other things, interest rates, changes in
consumer behavior that affect loan balances, such as paydown rates,
the Company’s Card Member acquisition strategy, product mix, cost
of funds, credit actions, including line size and other adjustments
to credit availability, potential pricing changes and deposit
rates, which could be impacted by, among other things, the factors
identified in the subsequent bullet;
- the Company’s deposit rates increasing
faster or slower than current expectations due to changes in the
Company’s funding mix, market pressures, regulatory constraints or
changes in benchmark interest rates, which could affect the
Company’s net interest yield and funding costs;
- 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
commercial 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, including the growth of international proprietary
and GNS billed business, which could be impacted by regulation and
business practices, such as those capping interchange or other
fees, favoring local competitors or prohibiting or limiting foreign
ownership of certain businesses; the Company’s ability to partner
with additional GNS issuers as a result of regulation or otherwise
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, including within the premium space, 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 ability of the Company to maintain
and expand its presence in the digital payments space, which will
depend on the Company’s success in evolving its products and
processes for the digital environment, offering attractive value
propositions to Card Members to incentivize the use of and enhance
satisfaction with the Company’s digital channels and the Company’s
products as a means of payment through online and mobile channels,
building partnerships and executing programs with other companies,
and utilizing digital capabilities that can be leveraged for future
growth;
- the ability of the Company to innovate
and introduce new network features and offer expanded products and
services to GNS partners, which will depend in part on the ability
of the Company to update its systems and platforms, the amount the
Company invests in the network, and technological developments
relating to fraud protection support, marketing insights and
digital connections;
- 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 and economic
environment in any given period;
- uncertainty relating to the ultimate
outcome of the antitrust lawsuit filed against the Company by the
U.S. Department of Justice and certain state attorneys general,
including the review of the case by the U.S. Supreme Court and the
impact on existing private merchant cases and potentially
additional litigation and/or arbitrations;
- 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, including our ability to continue certain GNS and other
partnerships; 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 U.S. Administration and 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 (including further impacts from the recent
hurricanes in Texas, Florida and Puerto Rico), health pandemics,
terrorism, cyber attacks or fraud, any of which could significantly
affect demand for and spending on American Express cards,
delinquency rates, loan balances and other aspects of the Company
and its results of operations 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, the Company’s Quarterly Reports on Form
10-Q for the quarters ended March 31 and June 30, 2017 and the
Company’s other reports filed with the Securities and Exchange
Commission.
American Express Company (Preliminary)
Appendix I Reconciliations of
Adjustments (Millions, except percentages and where indicated)
YOY % Change Q3'17 Q3'16
Adjusted
Operating Expenses
Operating expenses (A) $ 2,763 $
2,761 - U.S. Loyalty Coalition and Prepaid charges
(pre-tax) (B) (155 ) Q3'16 Restructuring
charge (pre-tax) (44 ) Adjusted
Operating Expenses $ 2,608 $ 2,717
(4 )
(A) Operating expenses represent salaries and employee benefits,
professional services, occupancy and equipment, communications, and
other, net.(B) Includes asset impairments and restructuring and
other charges.
1 Represents net income less (i) earnings allocated to
participating share awards of $11 million and $9 million for the
three months ended September 30, 2017 and 2016, respectively, and
$32 million and $37 million for the nine months ended September 30,
2017 and 2016, respectively, and (ii) dividends on preferred shares
of $21 million for both the three months ended September 30, 2017
and 2016, and $61 million for both the nine months ended September
30, 2017 and 2016.
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 September 30, 2017 apply to the period(s) against
which such results are being compared). 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.
3 Operating expenses represent salaries and employee benefits,
professional services, occupancy and equipment, communications, and
other, net. Adjusted operating expenses is a non-GAAP measure.
Management believes adjusted operating expenses is a useful metric
for evaluating the company’s ongoing performance and cost reduction
efforts. See Appendix I for a reconciliation to operating expenses
on a GAAP basis.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20171018006426/en/
Media:Marina H. Norville,
+1.212.640.2832marina.h.norville@aexp.comORInvestors/Analysts:Toby
Willard, +1.212.640.5574sherwood.s.willardjr@aexp.comorShreya
Patel, +1.212.640.5574shreya.patel@aexp.com
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