Strong 2018 Revenue
Growth Reflects Higher Card Member Spending, Loans and Card
Fees
American Express Company (NYSE: AXP) today reported
fourth-quarter net income of $2.0 billion, or $2.32 per share,
compared with a net loss of $1.2 billion, or $1.42 per share, a
year ago.
(Millions, except percentages and per
share amounts)
Quarters
Ended
December 31,
Percentage Inc/(Dec)
Years Ended
December 31,
Percentage Inc/(Dec)
2018 2017
2018 2017 Total Revenues Net of
Interest Expense $ 10,474 $
9,707 8 $
40,338 $ 36,878 9 Net Income
(Loss) $ 2,010 $
(1,206) # $ 6,921
$ 2,748 # Earnings (Loss) Per Common
Share – Diluted:
Net Income (Loss) Attributable to Common
Shareholders1
$ 2.32 $
(1.42) # $ 7.91 $
2.99 # Average Diluted Common Shares
Outstanding 852
865 (2)
859 886 (3) # -
Denotes a variance of 100 percent or more.
The current period included $496 million, or $0.58 per share, of
certain discrete tax benefits. The year-ago period included a
charge of $2.6 billion, or ($2.99) per share, related to the Tax
Cuts and Jobs Act (the “Tax Act”).
Fourth-quarter consolidated total revenues net of interest
expense were a record $10.5 billion, up 8 percent from $9.7 billion
a year ago. Excluding the impact of foreign exchange rates,
adjusted revenues net of interest expense grew 10 percent.2 The
rise reflected higher Card Member spending, loan volumes and card
fees.
Consolidated provisions for losses were $954 million, up 14
percent from $834 million a year ago. The increase reflected growth
in the loan portfolio and higher lending write-off rates.
Consolidated expenses were $7.7 billion, up 9 percent from $7.1
billion a year ago. The rise primarily reflected higher rewards and
other customer engagement costs, which were partially offset by
lower operating expenses.3
The consolidated effective tax rate was (9.8) percent, down
substantially from a year ago. The $496 million tax benefit
mentioned above reflected changes in the tax method of accounting
for certain expenses; the resolution of certain prior years’ tax
audits; and an adjustment to the company’s 2017 provisional tax
charge related to the Tax Act. The effective tax rate for the
quarter excluding these items was 17.3 percent.4
For the full year, the company reported net income of $6.9
billion, compared with net income of $2.7 billion a year ago.
Earnings per share were $7.91, compared with $2.99 a year ago.
Revenues net of interest expense for the full year were a record
$40.3 billion, up 9 percent (10 percent FX adjusted2) from $36.9
billion a year ago.
Consolidated expenses for the full year increased 8 percent to
$28.9 billion from $26.7 billion a year ago.
“We continue to see very good returns on the investments
we’ve been making to gain share and add scale,” said Stephen J.
Squeri, chairman and chief executive officer. “Our growth
throughout 2018 was broad-based and well-balanced across
geographies and business lines. Card Member spending rose an
fx-adjusted 8 percent, lapping a strong year-ago quarter. This was
the sixth consecutive quarter with revenue growth of at least 8
percent, and it was driven again by higher Card Member spending,
loans and card fees.
“The total revenue we generated in 2018 was well above our
initial expectations and gave us the flexibility to make additional
investments in the business each quarter. We added 12 million new
cards during the year, continued to enhance the range of benefits
we offer, and continued to significantly expand the number of
merchants in our network. Robust top line growth, consistently good
credit quality and the leverage we get from disciplined control of
operating expenses delivered strong earnings per share each
quarter.
“We remain focused on four strategic priorities:
- Expand leadership in the premium
consumer space
- Build on our strong position in
commercial payments
- Strengthen our global integrated
network to provide unique value and
- Make American Express an essential part
our customers’ digital lives.
We’ve made great progress on each of them and feel very good
about the competitive advantages that come from our business
model.
“Our focus is on continuing to make the investments that can
drive higher revenue growth, which is the foundation for
consistent, double-digit EPS growth. While there are mixed signals
in the political and economic environment, based on what we see in
the business we are starting 2019 from a position of strength. We
expect full year 2019 revenue growth to be between 8 and 10 percent
and EPS to be between $7.85 and $8.35, subject to
contingencies.”
Global Consumer Services Group reported fourth-quarter
net income of $702 million, up 13 percent from $624 million a year
ago.
Total revenues net of interest expense were $5.6 billion, up 11
percent from $5.1 billion a year ago. The rise primarily reflected
higher loans, Card Member spending, and card fees.
Provisions for losses totaled $726 million, up 13 percent from
$641 million a year ago. The rise primarily reflected growth in the
loan portfolio and an increase in the lending write-off rate.
Total expenses were $4.2 billion, up 17 percent from $3.6
billion a year ago. The rise primarily reflected higher rewards and
other customer engagement costs and increased operating
expenses.
The effective tax rate was 3 percent, down from 27 percent a
year ago, reflecting the resolution of certain prior years’ tax
items and the reduction in the U.S. federal statutory tax rate.
Global Commercial Services reported fourth-quarter net
income of $624 million, up 15 percent from $542 million a year
ago.
Total revenues net of interest expense were $3.3 billion, up 8
percent from $3.1 billion a year ago. The increase primarily
reflected higher Card Member spending.
Provisions for losses totaled $223 million, up 19 percent from
$187 million a year ago, reflecting higher provision across both
the charge and lending portfolios, in part driven by growth in
receivable and loan balances.
Total expenses were $2.4 billion, up 12 percent from $2.1
billion a year ago. The rise primarily reflected higher rewards and
other customer engagement costs and increased operating
expenses.
The effective tax rate was 11 percent, down from 29 percent a
year ago, reflecting the reduction in the U.S. federal statutory
tax rate and the resolution of certain prior years’ tax items.
Global Merchant and Network Services reported
fourth-quarter net income of $501 million, up 9 percent from $459
million a year ago.
Total revenues net of interest expense were $1.6 billion,
unchanged from a year ago. The current quarter reflected higher
Card Member spending, offset by a decrease in the average discount
rate and lower revenues from network partners.
Total expenses were $1.0 billion, up 5 percent from $949 million
a year ago.
The effective tax rate was 20 percent, down from 31 percent a
year ago, reflecting the reduction in the U.S. federal statutory
tax rate, and the resolution of certain prior years’ tax items.
Corporate and Other reported fourth-quarter net income of
$183 million, compared with a net loss of $2.8 billion a year ago.
The current period included a portion of the above-mentioned
discrete tax items while the year ago period reflected the impact
of the Tax Act.
About American Express
American Express is a globally integrated payments 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, travel
services, gift cards, prepaid cards, merchant services, Accertify,
InAuth, corporate card, business travel, and corporate
responsibility.
This earnings release should be read in conjunction with the
company’s statistical tables for the fourth-quarter 2018, 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 fourth-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.
American Express Company plans to host its annual Investor Day
on Wednesday, March 13, 2019 at 9 a.m. (ET). At the meeting, senior
executives will discuss key business trends, initiatives and
long-term strategies.
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 American Express Company’s current
expectations regarding business and financial performance,
including management’s outlook for 2019, among other matters,
contain words such as “believe,” “expect,” “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
2019 earnings per common share outlook, which will depend in part
on revenue growth, credit performance and the effective tax rate
remaining consistent with current expectations, the company’s
ability to control operating expense growth and generate operating
leverage, and the company’s ability to continue executing its share
repurchase program; any of which could be impacted by, among other
things, the factors identified in the subsequent paragraphs; issues
impacting brand perceptions and the company’s reputation; 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, increases in Card
Member reimbursements, restructurings, impairments and changes in
reserves; the amount the company spends on customer engagement and
the company’s inability to drive growth from such investments;
changes in interest rates beyond current expectations (including
the impact of hedge ineffectiveness and deposit rate increases); a
greater impact from new or renegotiated cobrand agreements than
expected, which could be affected by volumes and customer
engagement; and 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 ability of the company to achieve
its 2019 revenue growth outlook, 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 and revolve balances, growth in Card Member loans and the
yield on Card Member loans not remaining consistent with current
expectations, a greater decline of the average discount rate than
expected, the strengthening of the U.S. dollar beyond expectations,
the willingness of Card Members to pay higher card fees, lower
spending on new cards acquired than estimated, and the company’s
inability to address competitive pressures and implement its
strategies and business initiatives, including within the premium
consumer segment, commercial payments, the global network and
digital environment;
- 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
new and existing cobrand relationships, competition from new and
non-traditional competitors and the success of marketing, promotion
and rewards programs;
- a decline of the average discount rate
by a greater amount than anticipated, including as a result of
changes in the mix of spending by location and industry, merchant
negotiations (including merchant incentives, concessions and
volume-related pricing discounts), pricing initiatives,
competition, pricing regulation (including regulation of
competitors’ interchange rates in the European Union and elsewhere)
and other factors;
- the company’s delinquency and write-off
rates and growth of provisions for losses being higher or lower
than current expectations, which will depend in part on changes in
the level of loan and receivable balances and delinquencies
generally as well as in areas impacted by natural disasters, the
mix of balances, including a greater-than-expected shift in mix
toward non-cobrand lending products, newer vintages and balance
transfers, 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, collections capabilities and recoveries of previously
written-off loans and receivables;
- the company’s ability to continue to
grow loans, which may be affected by increasing competition, brand
perceptions and reputation, the company’s ability to manage risk,
the behavior of Card Members and their actual spending and
borrowing patterns, and 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 company’s net interest yield on
average Card Member loans not remaining consistent with current
expectations, which will be influenced by, among other things, the
difference between the prime rate and the company’s cost of funds,
changes in consumer behavior that affect loan balances (such as
paydown rates), the company’s Card Member acquisition strategy,
changes in the level of loans at promotional rates, pricing
changes, product mix and credit actions, including line size and
other adjustments to credit availability, which could be impacted
by, among other things, changes in benchmark interest rates,
competitive pressure and regulatory constraints;
- the company’s cost of Card Member
services growing inconsistently from expectations, which will
depend in part on the company’s inability to cost effectively
enhance card products and services to make them attractive to Card
Members; the degree of interest of Card Members in the value
propositions offered by the company; increasing competition, which
could result in needing to offer additional benefits and services;
and the pace and cost of the expansion of the company’s global
lounge collection;
- the actual amount to be spent on
customer engagement, which will be based in part on the factors
identified in the preceding paragraph; management’s assessment of
competitive opportunities; overall business performance and changes
in macroeconomic conditions; Card Member behavior as it relates to
their spending patterns, including the level of spend in bonus
categories, and the redemption of rewards; costs related to reward
point redemptions, advertising and Card Member acquisition; 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 control
operating expense growth, 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;
higher than expected employee levels; an inability to innovate
efficient channels of customer interactions, such as chat supported
by artificial intelligence, or customer acquisition; 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; and
the level of M&A activity and related expenses;
- the company’s tax rate not remaining
consistent with current expectations, which could be impacted by,
among other things, the company’s geographic mix of income, further
changes in tax laws and regulation, unfavorable tax audits and
other unanticipated tax items;
- the company’s ability to strengthen its
leadership in the premium segment, 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 investments, 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 extend
its leadership in commercial payments, which will depend in part on
competition, the willingness and ability of companies to use credit
and charge cards for procurement and other business expenditures as
well as use other payment products for financing needs, 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 to potential customers, the company’s
ability to enhance and expand its payment and lending solutions and
the company’s ability to grow internationally, including through
digital acquisitions and customer engagement capabilities;
- the ability of the company to innovate
and strengthen its global network, 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 its ability to make
funds available for such investments, and technological
developments, including capabilities that allow greater digital
connections;
- the ability of the company to play a
more essential role in the digital lives of its customers, which
will depend on the company’s success in evolving its products and
processes for the digital environment, introducing new features in
the Amex app and 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, developing digital
capabilities and artificial intelligence to address travel and
lifestyle needs and successfully integrating platforms we may
acquire, all of which will be impacted by investment levels, new
product innovation and development and infrastructure to support
new products, services and benefits;
- the possibility that the company will
not execute on its plans to expand the merchant base, which will
depend in part on the success of the company, OptBlue merchant
acquirers and GNS partners in signing merchants to accept American
Express, which could be impacted by the value propositions offered
to merchants, OptBlue merchant acquirers and GNS partners, 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 realize
the benefits from its strategic partnership with PayPal and provide
innovative ways for Card Members to pay online and make P2P
transfers, which is dependent on the ability of the companies to
collaborate and develop capabilities, features and functionalities,
successfully integrate them in their platforms and technologies and
launch the solutions in accordance with agreed upon
conditions;
- a failure in or breach of the company’s
operational or security systems, processes or infrastructure, or
those of third parties, including as a result of cyber attacks,
which could compromise the confidentiality, integrity, privacy
and/or security of data, disrupt its operations, reduce the use and
acceptance of American Express cards and lead to regulatory
scrutiny, litigation, remediation and response costs, and
reputational harm;
- legal and regulatory developments,
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 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 generally, the availability and cost
of capital, unemployment rates, geopolitical conditions, Brexit,
trade policies, foreign currency rates and interest rates, as well
as fire, power loss, disruptions in telecommunications, severe
weather conditions, natural disasters, health pandemics or
terrorism, any of which could significantly affect demand for and
spending on American Express cards, delinquency rates, loan and
receivable 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 American Express Company’s Annual Report on Form 10-K
for the year ended December 31, 2017, the company’s Quarterly
Reports on Form 10-Q for the quarters ended March 31, June 30 and
September 30, 2018 and the company’s other reports filed with the
Securities and Exchange Commission.
American Express Company
(Preliminary) Appendix I Reconciliations of
Adjustments Q4'18 Effective Tax
Rate Excluding Discrete Tax Items Effective tax rate
(9.8%) Discrete tax impacts (X) 27.1%
Effective tax rate excluding discrete tax items 17.3%
(X) Reflects changes in the tax method of accounting for certain
expenses; the resolution of certain prior years' tax audits, and an
adjustment to the Company's 2017 provisional tax charge related to
the Tax Act.
___________________________________
1 Represents net income less (i) earnings
allocated to participating share awards of $16 million and $2
million for the three months ended December 31, 2018 and 2017,
respectively, and $54 million and $21 million for the years ended
December 31, 2018 and 2017, respectively, and (ii) dividends on
preferred shares of $19 million and $20 million for the three
months ended December 31, 2018 and 2017 respectively, and $80
million and $81 million for the years ended December 31, 2018 and
2017, respectively.
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 (e.g., assumes the foreign exchange rates used to determine
results for the three months ended December 31, 2018 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, and other expenses.
4 The effective tax rate excluding certain discrete tax benefits
recognized in the fourth quarter of 2018 is a non-GAAP measure.
Management believes the effective tax rate excluding these items is
useful in evaluating the company’s tax rate for the quarter
relative to the full year. See Appendix I for a reconciliation to
the effective tax rate on a GAAP basis.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190117005718/en/
Media:Marina H. Norville,
marina.h.norville@aexp.com, +1.212.640.2832Amelia T. Woltering,
amelia.t.woltering@aexp.com, +1.212.640.7034
Investors/Analysts:Edmund Reese,
edmund.reese@aexp.com, +1.212.640.5574Shreya Patel,
shreya.patel@aexp.com, +1.212.640.5574
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