American Exp.Co
American Express Company (NYSE: AXP):
Earnings Per Share from Continuing Operations Rise 26%
Nearly 2 Million Cards-in-Force Added in the First Quarter
American Express Company (NYSE: AXP) today reported first quarter income from
continuing operations of $1.1 billion, up 22 percent from $876 million a year
ago.
(Millions, except per share amounts)
Quarters Ended Percentage
March 31, Inc/(Dec)
--------------- ----------
2007 2006
------- -------
Revenues net of interest expense $6,668 $6,053 10%
Income From Continuing Operations $1,065 $ 876 22%
Loss From Discontinued Operations $ (8) $ (3) #
Net Income $1,057 $ 873 21%
Earnings Per Common Share - Basic:
Income From Continuing Operations $ 0.90 $ 0.71 27%
Loss From Discontinued Operations $(0.01) $ - #
Net Income $ 0.89 $ 0.71 25%
Earnings Per Common Share - Diluted:
Income From Continuing Operations $ 0.88 $ 0.70 26%
Loss From Discontinued Operations $(0.01) $(0.01) -
Net Income $ 0.87 $ 0.69 26%
Average Common Shares Outstanding
Basic 1,187 1,232 (4%)
Diluted 1,210 1,258 (4%)
Return on Average Equity* 36.6% 27.3%
--------------------------------------------------- ------- ----------
* Computed on a trailing 12-month basis using net income over average total
shareholders' equity (including discontinued operations) as included in the
Consolidated Financial Statements prepared in accordance with U.S. generally
accepted accounting principles (GAAP).
# Denotes a variance of more than 100%.
American Express Company today reported first quarter income from continuing
operations of $1.1 billion, up 22 percent from $876 million a year ago. Diluted
earnings per share from continuing operations were $0.88, up 26 percent from
$0.70.
Net income for the quarter also totaled $1.1 billion, up 21 percent from $873
million a year ago, and $0.87 per share, up 26 percent from $0.69.
Consolidated revenues net of interest expense rose 10 percent to $6.7 billion,
up from $6.1 billion a year ago.
Consolidated expenses totaled $4.2 billion, up 4 percent from $4.1 billion a
year ago.
The Company's return on equity (ROE) was 36.6 percent.
"Higher revenues, combined with tight controls on discretionary expenses,
delivered excellent bottom line results for the quarter," said Kenneth I.
Chenault, chairman and chief executive.
"Net income for the quarter was a record, exceeding the $1 billion level for the
first time since the Ameriprise spin-off in late 2005.
"Our strong revenue growth reflects the benefit of multi-year investments in our
payments business that are generating across-the-board spending growth from
consumer, small business and corporate Cardmembers.
"Our ability to customize marketing and reward programs for areas with the
highest returns helped us to start the year with strong momentum.
"Our performance was again at the top of the industry, with Cardmember spending
up 15 percent and loan volumes up 29 percent. We also added nearly 2 million
cards-in-force this quarter.
"Credit quality was very strong, reflecting our management controls and
continued success in the premium sector. Key indicators are returning to a more
traditional range compared to the unusually good levels of a year ago."
The first quarter results included:
-- An $80 million ($50 million after-tax) gain in connection with the
initial adoption of a new accounting standard that requires the Company
to record in its Consolidated Statements of Income changes in the fair
market value of its retained interest in securitized cardmember loans
(these changes in fair market value were previously recorded in
shareholders' equity);
-- A $63 million ($39 million after-tax) gain related to changes in the
Company's U.S. pension plans; and
-- A $60 million (pretax and after-tax) reserve established for regulatory
and legal exposure at American Express Bank International (a subsidiary
of American Express Bank Ltd.).
Also included in the quarter was $32 million ($21 million after-tax) of
reengineering costs related primarily to restructuring initiatives throughout
the Company.
Significant items in the year-ago quarter included:
-- A $112 million ($73 million after-tax) charge associated with certain
adjustments made to the Membership Rewards reserve model in the U.S.;
-- A $72 million ($47 million after-tax) reduction in cardmember lending
finance revenue, and securitization income, net, related to higher than
anticipated Cardmember completion of consumer debt repayment programs
and certain associated payment waivers; and
-- An $88 million ($40 million after-tax) gain from the sale of an
investment in Egyptian American Bank (EAB).
Also included in the year-ago quarter was $25 million ($16 million after-tax) of
reengineering costs.
In addition, the year-ago quarter results included a favorable impact from lower
early credit write offs, in the aftermath of bankruptcy legislation changes and
lower than expected costs associated with Hurricane Katrina that had been
provided for in 2005. These benefits were partially offset by higher provisions
for losses in Taiwan due primarily to the impact of industry-wide credit issues.
Discontinued operations
Discontinued operations (primarily businesses sold in previous years) reflected
a loss of $8 million this quarter compared to a $3 million loss a year ago.
Segment results
As previously reported, the Company had been in discussions with the Securities
and Exchange Commission (SEC) regarding its reportable operating segments. The
Company recently completed its discussions with the SEC. As a result of those
discussions, Travelers Cheques & Prepaid Services (previously reported in U.S.
Card Services) and international banking businesses (previously reported in
International Card & Global Commercial Services) are now reported in the
Corporate & Other segment. The following segment discussion, as well as the
selected financial data for all periods presented, reflect these changes.
The following discussion of first quarter results presents all segments on a
GAAP basis.
U.S. Card Services reported first quarter net income of $644 million, up 22
percent from $527 million a year ago.
Revenues net of interest expense for the first quarter increased 16 percent to
$3.4 billion, reflecting higher spending and borrowing by consumers and small
businesses. Cardmember lending finance revenue increased 57 percent, reflecting
substantial growth in owned loan volume. Securitization income, net, increased
18 percent, primarily due to the initial adoption of a new accounting standard.
Revenues in last year's first quarter were reduced by the previously mentioned
costs associated with a higher than anticipated number of Cardmembers completing
consumer debt repayment programs.
Total expenses decreased 1 percent. Marketing, promotion, rewards and cardmember
services expenses decreased 7 percent from the year-ago period, which included a
$106 million charge for certain adjustments to the Membership Rewards reserve
model. Lower marketing and promotion expenses this quarter were offset by a
volume-related increase in rewards costs. Human resources and other operating
expenses increased 8 percent, reflecting higher technology costs, professional
services and reengineering costs. These items were partially offset by $36
million of the gain from changes to the Company's U.S. pension plans.
Provisions for losses increased 89 percent reflecting higher loan volumes and an
increase in write-off and delinquency rates from the unusually low levels that
followed the bankruptcy legislation mentioned earlier.
International Card & Global Commercial Services reported first quarter net
income of $235 million, up 64 percent from $143 million a year ago.
Revenues net of interest expense increased 3 percent to $2.0 billion, reflecting
higher spending by corporate and international consumer Cardmembers, as well as
higher loan balances. These increases were partially offset by last year's sale
of card-related operations in Brazil, Malaysia, and Indonesia.
Total expenses were flat. Human resources and other operating expenses decreased
2 percent, benefiting from $21 million of the previously mentioned pension gain.
Marketing, promotion, rewards and cardmember services expenses increased 7
percent. An increase in volume-related rewards costs was partially offset by
lower marketing and promotion expenses.
Provisions for losses decreased 19 percent from year-ago levels, which had
reflected industry-wide credit issues in Taiwan.
Global Network & Merchant Services reported first quarter net income of $236
million, up 42 percent from $166 million a year ago.
Revenues net of interest expense for the first quarter increased 17 percent to
$877 million. The increase reflects continued strong growth in merchant-related
revenue primarily resulting from higher company-wide billed business. The
increase also reflects higher network partner-related fees.
Spending on Global Network Services cards increased 59 percent from year-ago
levels. Cards-in-force issued by bank partners increased 45 percent. These
increases also reflect, in part, the completion in 2006 of independent operator
agreements in Brazil, Malaysia, and Indonesia.
Total expenses increased 10 percent. Human resources and other operating
expenses increased 15 percent reflecting increased staffing levels and
technology costs. Partially offsetting these increases was a 4 percent decrease
in brand-related marketing and promotion expenses.
Provisions for losses in the quarter reflect a reduction in merchant-related
reserves.
Corporate & Other reported first quarter net expenses of $50 million, compared
with net income of $40 million a year ago. Expenses for the quarter included the
previously mentioned reserves established at American Express Bank
International. The year-ago quarter included an $88 million ($40 million
after-tax) gain related to the completion of the sale of the Company's
investment in EAB.
American Express Company (www.americanexpress.com) is a leading global payments,
network and travel company founded in 1850.
Note: The 2006 First Quarter Earnings Supplement, as well as Executive Vice
President and acting CFO Dan Henry's presentation from the investor conference
call referred to below, will be available today on the American Express web site
at http://ir.americanexpress.com. An investor conference call to discuss first
quarter earnings results, operating performance and other topics that may be
raised during the discussion will be held at 5:00 p.m. (EST) today. Live audio
of the conference call will be accessible to the general public on the American
Express web site at http://ir.americanexpress.com. A replay of the conference
call also will be available today at the same web site address.
This release includes forward-looking statements, which are subject to risks and
uncertainties. The words "believe," "expect," "anticipate," "optimistic,"
"intend," "plan," "aim," "will," "may," "should," "could," "would," "likely,"
and similar expressions are intended to identify forward-looking statements.
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 meet its ROE target range of 33 to 36 percent on average
and over time, which will depend in part on factors such as the Company's
ability to generate sufficient revenue growth and achieve sufficient margins,
fluctuations in the capital required to support its businesses, the mix of the
Company's financings, and fluctuations in the level of the Company's
shareholders' equity due to share repurchases, dividends, changes in accumulated
other comprehensive income and accounting changes, among other things; the
Company's ability to grow its business and meet or exceed its return on
shareholders' equity target by reinvesting approximately 35 percent of
annually-generated capital, and returning approximately 65 percent of such
capital to shareholders, over time, which will depend on the Company's ability
to manage its capital needs and the effect of business mix, acquisitions and
rating agency requirements; consumer and business spending on the Company's
credit and charge card products and Travelers Cheques and other prepaid products
and growth in card lending balances, which depend in part on the ability to
issue new and enhanced card and prepaid products, services and rewards programs,
and increase revenues from such products, attract new cardmembers, reduce
cardmember attrition, capture a greater share of existing cardmembers' spending,
and sustain premium discount rates on its card products in light of regulatory
and market pressures, increase merchant coverage, retain cardmembers after low
introductory lending rates have expired, and expand the Global Network Services
business; the success of the Global Network Services business in partnering with
banks in the United States, which will depend in part on the extent to which
such business further enhances the Company's brand, allows the Company to
leverage its significant processing scale, expands merchant coverage of the
network, provides Global Network Services' bank partners in the United States
the benefits of greater cardmember loyalty and higher spend per customer, and
merchant benefits such as greater transaction volume and additional higher
spending customers; fluctuations in interest rates, which impact the Company's
borrowing costs and return on lending products; the continuation of favorable
trends, including increased travel and entertainment spending, and the overall
level of consumer confidence; the costs and integration of acquisitions; the
success, timeliness and financial impact (including costs, cost savings and
other benefits including increased revenues), and beneficial effect on the
Company's operating expense to revenue ratio, both in the short-term and over
time, of reengineering initiatives being implemented or considered by the
Company, including cost management, structural and strategic measures such as
vendor, process, facilities and operations consolidation, outsourcing
(including, among others, technologies operations), relocating certain functions
to lower-cost overseas locations, moving internal and external functions to the
Internet to save costs, and planned staff reductions relating to certain of such
reengineering actions; the Company's ability to reinvest the benefits arising
from such reengineering actions in its businesses; the ability to control and
manage operating, infrastructure, advertising and promotion expenses as business
expands or changes, including the ability to accurately estimate the provision
for the cost of the Membership Rewards program; the Company's ability to manage
credit risk related to consumer debt, business loans, merchant bankruptcies and
other credit trends and the rate of bankruptcies, which can affect spending on
card products, debt payments by individual and corporate customers and
businesses that accept the Company's card products and returns on the Company's
investment portfolios; bankruptcies, restructurings, consolidations or similar
events affecting the airline or any other industry representing a significant
portion of the Company's billed business, including any potential negative
effect on particular card products and services and billed business generally
that could result from the actual or perceived weakness of key business partners
in such industries; the triggering of obligations to make payments to certain
co-brand partners, merchants, vendors and customers under contractual
arrangements with such parties under certain circumstances; a downturn in the
Company's businesses and/or negative changes in the Company's and its
subsidiaries' credit ratings, which could result in contingent payments under
contracts, decreased liquidity and higher borrowing costs; risks associated with
the Company's agreements with Delta Air Lines to prepay a remaining balance of
approximately $115 million for the future purchases of Delta SkyMiles rewards
points; fluctuations in foreign currency exchange rates; accuracy of estimates
for the fair value of the assets in the Company's investment portfolio and, in
particular, those investments that are not readily marketable, including the
valuation of the interest-only strip relating to the Company's lending
securitizations; the Company's ability to protect its intellectual property
rights (IP) and avoid infringing the IP of other parties; the potential negative
effect on the Company's businesses and infrastructure, including information
technology, of terrorist attacks, natural disasters or other catastrophic events
in the future; political or economic instability in certain regions or
countries, which could affect lending and other commercial activities, among
other businesses, or restrictions on convertibility of certain currencies;
changes in laws or government regulations; outcomes and costs associated with
litigation and compliance and regulatory matters; and competitive pressures in
all of the Company's major businesses. A further description of these and other
risks and uncertainties can be found in the Company's Annual Report on Form 10-K
for the year ended December 31, 2006, and its other reports filed with the SEC.
All information in the following tables is presented on a basis prepared in
accordance with U.S. generally accepted accounting principles (GAAP), unless
otherwise indicated. Amounts herein reflect certain adjustments as noted in the
Company's Form 8-K dated March 30, 2007 filed with the U.S. Securities and
Exchange Commission. See also pages 2 - 3 of the 2007 First Quarter Earnings
Supplement for a description of such adjustments.
(Preliminary)
American Express Company
----------------------------------------------------------------------
Consolidated Statements of Income
----------------------------------------------------------------------
(Millions)
Quarters Ended
March 31, Percentage
---------------
2007 2006 Inc/(Dec)
------- ------- ---------
Revenues
Discount revenue $3,355 $2,969 13 %
Net card fees 484 520 (7)
Travel commissions and fees 437 418 5
Other commissions and fees 622 639 (3)
Securitization income, net 457 386 18
Other 415 396 5
------- -------
Total 5,770 5,328 8
------- -------
Interest income:
Cardmember lending finance revenue 1,368 947 44
International banking 264 257 3
Other 229 188 22
------- -------
Total 1,861 1,392 34
------- -------
Total revenues 7,631 6,720 14
------- -------
Interest expense:
Cardmember lending 385 246 57
International banking 126 88 43
Charge card and other 452 333 36
------- -------
Total 963 667 44
------- -------
Revenues net of interest expense 6,668 6,053 10
------- -------
Expenses
Marketing, promotion, rewards and
cardmember services 1,464 1,522 (4)
Human resources 1,280 1,240 3
Professional services 629 561 12
Occupancy and equipment 370 346 7
Communications 116 113 3
Other 349 278 26
------- -------
Total 4,208 4,060 4
------- -------
Provisions for losses and benefits:
Charge card 209 209 -
Cardmember lending 574 321 79
International banking and other
(including investment certificates) 83 138 (40)
------- -------
Total 866 668 30
------- -------
Pretax income from continuing operations 1,594 1,325 20
Income tax provision 529 449 18
------- -------
Income from continuing operations 1,065 876 22
Loss from discontinued operations, net of
tax (8) (3) #
------- -------
Net income $1,057 $ 873 21
======= =======
# - Denotes a variance of more than 100%.
(Preliminary)
American Express Company
----------------------------------------------------------------------
Condensed Consolidated Balance Sheets
----------------------------------------------------------------------
(Billions)
March 31, December 31,
2007 2006
---------- ------------
Assets
Cash and cash equivalents $ 8 $ 8
Accounts receivable 38 39
Investments 22 21
Loans 49 50
Other assets 9 10
---------- ------------
Total assets $ 126 $ 128
========== ============
Liabilities and Shareholders' Equity
Short-term debt $ 15 $ 15
Long-term debt 44 43
Other liabilities 57 59
---------- ------------
Total liabilities 116 117
---------- ------------
Shareholders' equity 10 11
---------- ------------
Total liabilities and shareholders' equity $ 126 $ 128
========== ============
(Preliminary)
American Express Company
----------------------------------------------------------------------
Financial Summary
----------------------------------------------------------------------
(Millions)
Quarters Ended
March 31, Percentage
---------------
2007 2006 Inc/(Dec)
------- ------- ---------
Revenues net of interest expense
--------------------------------------------
U.S. Card Services $3,364 $2,898 16 %
International Card & Global Commercial
Services 1,996 1,934 3
Global Network & Merchant Services 877 748 17
------- -------
6,237 5,580 12
Corporate & Other, including adjustments
and eliminations 431 473 (9)
------- -------
CONSOLIDATED REVENUES NET OF INTEREST
EXPENSE $6,668 $6,053 10
======= =======
Pretax income (loss) from continuing
operations
--------------------------------------------
U.S. Card Services $1,031 $ 822 25
International Card & Global Commercial
Services 295 182 62
Global Network & Merchant Services 374 262 43
------- -------
1,700 1,266 34
Corporate & Other (106) 59 #
------- -------
PRETAX INCOME FROM CONTINUING OPERATIONS $1,594 $1,325 20
======= =======
Net income (loss)
--------------------------------------------
U.S. Card Services $ 644 $ 527 22
International Card & Global Commercial
Services 235 143 64
Global Network & Merchant Services 236 166 42
------- -------
1,115 836 33
Corporate & Other (50) 40 #
------- -------
Income from continuing operations 1,065 876 22
Loss from discontinued operations, net of
tax (8) (3) #
------- -------
NET INCOME $1,057 $ 873 21
======= =======
# - Denotes a variance of more than 100%.
(Preliminary)
American Express Company
----------------------------------------------------------------------
Financial Summary (continued)
----------------------------------------------------------------------
Quarters Ended
March 31, Percentage
---------------
2007 2006 Inc/(Dec)
------- ------- ---------
EARNINGS PER COMMON SHARE
BASIC
Income from continuing operations $ 0.90 $ 0.71 27 %
Loss from discontinued operations (0.01) - #
------- -------
Net income $ 0.89 $ 0.71 25 %
======= =======
Average common shares outstanding
(millions) 1,187 1,232 (4)%
======= =======
DILUTED
Income from continuing operations $ 0.88 $ 0.70 26 %
Loss from discontinued operations (0.01) (0.01) -
------- -------
Net income $ 0.87 $ 0.69 26 %
======= =======
Average common shares outstanding
(millions) 1,210 1,258 (4)%
======= =======
Cash dividends declared per common share $ 0.15 $ 0.12 25 %
======= =======
Selected
Statistical
Information
---------------
Quarters Ended
March 31, Percentage
---------------
2007 2006 Inc/(Dec)
------- ------- ---------
Return on average equity (A) 36.6% 27.3%
Common shares outstanding (millions) 1,188 1,233 (4)%
Book value per common share $ 8.83 $ 8.60 3 %
Shareholders' equity (billions) $ 10.5 $ 10.6 (1)%
# - Denotes a variance of more than 100%.
(A) Computed on a trailing 12-month basis using net income over
average total shareholders' equity (including discontinued
operations) as included in the Consolidated Financial Statements
prepared in accordance with GAAP.
To view additional business segment financials go to:
http://ir.americanexpress.com
Contact: Media:
Robert Glick, 212-640-1041
robert.a.glick@aexp.com
Michael O'Neill, 212-640-5951
mike.o'neill@aexp.com
or
Investors/Analysts:
Gabriella Fitzgerald, 212-640-5711
gabriella.p.fitzgerald@aexp.com
Ron Stovall, 212-640-5574
ronald.stovall@aexp.com
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