American Express Reports Second-Quarter

American Express Reports Second-Quarter

American Express Reports Second-Quarter

The FINANCIAL -- NEW YORK, July 18, 2018 -- American Express Company reported second-quarter net income of $1.6 billion, up 21 percent from $1.3 billion a year ago. Diluted earnings per share was $1.84, up 25 percent from $1.47 per share a year ago.

Second-quarter consolidated total revenues net of interest expense were a record $10.0 billion, up 9 percent from $9.2 billion a year ago. The increase reflected higher spending by consumer, small business, and corporate Card Members. Revenues for the quarter also benefitted from higher loan volumes and fee income.

Consolidated provisions for losses were $806 million, up 38 percent from $583 million a year ago. The increase, which was in line with the company’s full-year expectations, reflected growth in the loan and charge portfolios and higher write-off rates.

Consolidated expenses were $7.1 billion, up 7 percent from $6.6 billion a year ago. The rise primarily reflected higher rewards expenses and costs associated with marketing and business development. The latter category included continued investments in partnerships and higher spending on growth initiatives. Operating expenses were down 2 percent from a year ago, according to AMEX.

The consolidated effective tax rate was 22 percent, down from 31 percent a year ago. For consolidated results and all segments, the current quarter reflected the reduction in the U.S. federal statutory tax rate as a result of the 2017 Tax Cuts and Jobs Act.

“We are a globally integrated payments company and the power of our differentiated business model was evident throughout this quarter’s results,” said Stephen J. Squeri, chairman and chief executive officer. “Revenue growth was driven by broad-based increases in Card Member spending and fees. It also reflected the benefit of higher loan volumes, which that spending helped to generate.

“With total Card Member spending up 10 percent and 2.9 million new cards acquired, we are both strengthening relationships with current customers and attracting new ones through innovative products and services.

“We continued our progress towards parity coverage in the U.S., expanded our network internationally and announced new card offerings with three important business partners – Amazon, Marriott, and Wells Fargo.

“Our disciplined control of operating expenses, combined with revenue growth, gave us the flexibility to make substantial investments in our global brand campaign, additional customer benefits, and digital capabilities that will help to grow our business over the long term.

“After completing this year’s Federal Reserve stress test, we received a green light to increase the quarterly dividend and are resuming our share buybacks this quarter.”

Mr. Squeri also noted an important legal win during the quarter: “The U.S. Supreme Court ruled in our favor, found that our differentiated business model has spurred innovation, and ended a long-running antitrust case.”

Looking ahead, Mr. Squeri said, “We expect 2018 revenues to be up at least 9 percent, and we are reaffirming our full-year EPS guidance at the high end of the $6.90 – $7.30 range we set earlier this year.”

Segment Results

As previously announced, effective for the second quarter of 2018, the company realigned its reportable operating segments to reflect the organizational changes announced during the first quarter of 2018. Prior periods have been revised to conform to the new operating segments, which are as follows:

Global Consumer Services Group (GCSG), which primarily issues a wide range of proprietary consumer cards globally. GCSG also provides services to consumers, including travel services and non-card financing products, and manages certain international joint ventures and our partnership agreements in China.

Global Commercial Services (GCS), which primarily issues a wide range of proprietary corporate and small business cards and provides payment and expense management services globally. In addition, GCS provides commercial financing products.

Global Merchant and Network Services (GMNS), which operates a global payments network that processes and settles card transactions, acquires merchants and provides multi-channel marketing programs and capabilities, services and data analytics, leveraging our global integrated network. GMNS enters into partnership agreements with third-party card issuers and acquirers, licensing the American Express brand and extending the reach of the global network. GMNS also manages loyalty coalition businesses in certain countries around the world and our reloadable prepaid and gift card businesses.

Corporate functions and certain other businesses and operations are included in Corporate and Other.

Global Consumer Services Group reported second-quarter net income of $770 million, up 25 percent from $615 million a year ago.

Total revenues net of interest expense were $5.3 billion, up 12 percent from $4.7 billion a year ago. The rise primarily reflected higher loans, Card Member spending, and fee income.

Provisions for losses totaled $565 million, up 32 percent from $428 million a year ago. The rise primarily reflected growth in the loan portfolio and, as expected, an increase in the lending write-off rate.

Total expenses were $3.8 billion, up 11 percent from $3.4 billion a year ago. The rise primarily reflected higher rewards expenses and costs associated with marketing and business development.

The effective tax rate was 20 percent, down from 32 percent a year ago.

Global Commercial Services reported second-quarter net income of $564 million, up 18 percent from $477 million a year ago.

Total revenues net of interest expense were $3.2 billion, up 8 percent from $2.9 billion a year ago. The increase primarily reflected higher Card Member spending, according to AMEX.

Provisions for losses totaled $235 million, up 55 percent from $152 million a year ago, driven primarily by the charge portfolio.

Total expenses were $2.2 billion, up 9 percent from $2.0 billion a year ago. The rise primarily reflected higher costs associated with marketing and business development, and growth in rewards expenses.

The effective tax rate was 21 percent, down from 35 percent a year ago.

Global Merchant and Network Services reported second-quarter net income of $543 million, up 14 percent from $476 million a year ago.

Total revenues net of interest expense were $1.6 billion, up 1 percent from a year ago, primarily reflecting higher proprietary Card Member spending, partially offset by an expected decrease in the average discount rate and lower revenues from network partners.

Total expenses were $838 million, up 1 percent from $829 million a year ago.

The effective tax rate was 27 percent, down from 36 percent a year ago.

Corporate and Other reported second-quarter net loss of $254 million compared with net loss of $224 million a year ago.