The FINANCIAL — American Express Company on October 19 reported third-quarter diluted earnings per share of $1.20, down 3 percent from $1.24 a year ago.
Excluding a restructuring charge related to cost reduction efforts, adjusted diluted earnings per share was $1.24.
Third-quarter net income was $1.1 billion, down 10 percent from $1.3 billion a year ago, according to American Express.
The current quarter included higher spending on growth initiatives, largely reflected in marketing and promotion expenses, as well as solid progress related to company’s efforts to reduce its cost base. Credit quality remained strong, and the company returned a substantial amount of capital to shareholders through share repurchases and dividends. Year-ago results included business related to the company’s relationship with Costco that ended earlier this year.
Third-quarter consolidated total revenues net of interest expense were $7.8 billion, down 5 percent from $8.2 billion a year ago. Excluding the impact of Costco-related revenues in the year ago-period, adjusted revenues net of interest expense increased 5 percent, reflecting a rise in Card Member spending, along with higher net interest income and net card fees.
Consolidated provisions for losses were $504 million, down 5 percent from $529 million a year ago. The prior year included credit costs associated with cobrand portfolios that were sold earlier this year. Excluding the impact of those cobrand portfolios, adjusted provisions for losses increased 6 percent, primarily reflecting higher loan growth.
Consolidated expenses were $5.5 billion, down 3 percent from $5.7 billion a year ago. The prior year included Costco-related rewards costs, and an impairment of goodwill and technology assets. The current quarter reflected the higher levels of investment spending on growth initiatives and the restructuring charge mentioned above. These were offset in part by lower technology costs. Operating expenses were down 3 percent versus the prior year.
The effective tax rate for the quarter was 34 percent, down from 35 percent a year ago.
The company’s return on average equity (ROE) was 26 percent, down from 27 percent a year ago.
“Strong operating discipline and credit quality helped to keep us ahead of the 2016 financial outlook that we first provided at the beginning of the year,” said Kenneth I. Chenault, chairman and chief executive officer. “While reported revenues were down 5 percent, we saw underlying revenue growth of 5 percent after adjusting for the absence of Costco-related business this quarter – slightly faster than comparable second-quarter levels.3 Adjusted billed business was up 7 percent, adjusted loan growth remained healthy and net card fees rose 10 percent, reflecting strong performance across our premium card portfolios.
“The underlying performance reflected our broad, diversified business model as well as the relationships we’ve built over many years with Card Members who value the range of benefits and service that come with membership. Strength in our consumer business, growth internationally, the benefits of a larger merchant network and a broader presence among smaller and mid-sized companies offset softness in spending by large corporate Card accounts.
“Separate from our operating results,” Mr. Chenault said, “we received a favorable ruling in our ongoing antitrust litigation with the U.S. Department of Justice. By reversing an earlier lower court decision, the appellate judges upheld provisions within our merchant contracts that protect consumer choice, support competition and allow us to deliver superior products and services to our customers.
“Going forward we remain focused on three priorities: accelerate revenue growth, reset our cost base and optimize our investments.” Mr. Chenault added, “We’re making progress on initiatives that include a renewed emphasis on our Platinum Card portfolios, which provide service, access and benefits that have been the benchmark of value for more than 30 years. We’re launching our most extensive campaign yet to build on the success of Small Business Saturday and drive additional spending at neighborhood businesses in a way that leverages the ongoing expansion of our merchant network in the U.S. In addition, we’re going to continue to utilize digital marketing capabilities that helped to bring on a record 5.9 million new cards across our U.S. issuing businesses and 8.5 million cards globally this year. With these and other initiatives coming together at the start of the peak shopping season, we expect it to be a very active fourth quarter and we’ll be supporting all of our work with an extensive advertising campaign.
“The year-to-date progress gives us greater confidence to substantially increase our investment spending during the remainder of the year and, at the same time, raise our 2016 earnings guidance. While there’s more work and more challenges ahead, the investments we’re making are designed to position us for profitable, sustainable growth over the longer term, and we remain on track to earn at least $5.60 per share in 2017.”
The company now expects GAAP earnings per share for 2016 to be between $5.65 and $5.75, which includes the restructuring charges taken in the first three quarters of 2016. The adjusted earnings per share outlook, which excludes restructuring charges, is now $5.90 to $6.00. This is higher than the prior estimate of adjusted full year earnings per share at the high end of the company’s initial $5.40 to $5.70 range.6
Segment Results
U.S. Consumer Services reported third-quarter net income of $401 million, down 26 percent from $542 million a year ago. The year-ago period included Costco-related revenues, provisions and expenses.
Total revenues net of interest expense decreased 13 percent to $2.9 billion, from $3.3 billion a year ago.
Provisions for losses totaled $275 million, down 6 percent from $294 million a year ago.
Total expenses were $2.0 billion, down 7 percent from $2.2 billion a year ago. The prior year included Costco-related rewards costs, offset by higher investment spending on growth initiatives this quarter.
The effective tax rate was 35 percent compared to 37 percent a year ago.
International Consumer and Network Services reported third-quarter net income of $155 million, up 1 percent from $154 million a year ago.
Total revenues net of interest expense were $1.4 billion, up 5 percent (up 7 percent FX-adjusted7) from $1.3 billion a year ago. The increase primarily reflected higher Card Member spending and net card fees.
Provisions for losses totaled $84 million, up 9 percent from $77 million a year ago.
Total expenses were $1.1 billion, up 5 percent (up 7 percent FX-adjusted7) from $1.0 billion a year ago. The increase reflected higher investment spending on growth initiatives.
The effective tax rate was 25 percent, up from 23 percent a year ago.
Global Commercial Services reported third-quarter net income of $466 million, unchanged from a year ago. The year-ago period included Costco-related revenues, provisions and expenses.
Total revenues net of interest expense were $2.4 billion, unchanged from a year ago. The prior year included Costco-related revenues, offset by higher Card Member spending and higher net card fees in the current quarter.
Provisions for losses totaled $134 million, down 9 percent from $148 million a year ago.
Total expenses were $1.6 billion, up 1 percent from $1.5 billion a year ago. The current quarter reflected higher investment spending to support growth initiatives.
The effective tax rate was 36 percent, down from 37 percent a year ago.
Global Merchant Services reported third-quarter net income of $359 million, down 10 percent from $397 million a year ago. The year-ago period included Costco-related revenues.
Total revenues net of interest expense were $1.1 billion, down 6 percent from $1.2 billion a year ago.
Total expenses were $525 million, unchanged from a year ago. The year-ago period benefited from a litigation reserve reversal. Expenses for the current quarter benefited from growth of the OptBlue program, which does not include merchant acquirer payments.
The effective tax rate was 37 percent, unchanged from a year ago.
Corporate and Other reported third-quarter net loss of $240 million compared with net loss of $295 million a year ago.