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Share Name | Share Symbol | Market | Type |
---|---|---|---|
American Express Company | NYSE:AXP | NYSE | Common Stock |
Price Change | % Change | Share Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|
-1.71 | -0.74% | 230.79 | 233.35 | 229.13 | 233.26 | 3,202,527 | 01:00:00 |
Quarterly Results Include Gain from Loan Portfolio Sale, Restructuring Charge and Elevated Spending on Growth Initiatives
Business Performance Reflects Higher Card Member Spending, Lending Momentum, Strong Credit Quality and Cost Controls
American Express Company (NYSE:AXP) today reported second-quarter net income of $2.0 billion, up 37 percent from $1.5 billion a year ago. Diluted earnings per share increased 48 percent to $2.10, up from $1.42 a year ago.
(Millions, except percentages and per share amounts)
Quarters Ended
Percentage
Six Months Ended
Percentage
June 30,
Inc/(Dec)
June 30,
Inc/(Dec)
2016 2015 2016 2015 Total Revenues Net of Interest Expense $8,235 $ 8,284 (1) $16,323 $ 16,234 1 Net Income $2,015 $ 1,473 37 $3,441 $ 2,998 15 Earnings Per Common Share – Diluted:Net Income Attributable to Common Shareholders1
$2.10 $ 1.42 48 $3.54 $ 2.90 22 Average Diluted Common Shares Outstanding 941 1,013 (7) 952 1,018 (6) Return on Average Equity 26.4% 28.1 % 26.4% 28.1 %Net income from the quarter included a gain of $1.1 billion ($677 million after-tax) from the previously announced sale of the company’s Costco U.S. cobrand card portfolio and a $232 million ($151 million after-tax) restructuring charge related to the company’s efforts to reduce its cost base.
Second-quarter consolidated total revenues net of interest expense were $8.2 billion, down 1 percent from $8.3 billion a year ago. Excluding the impact of foreign exchange rates due to the impact of a stronger U.S. dollar on international operations, adjusted revenues increased 1 percent, reflecting higher net card fees and net interest income.2 These benefits were offset in part by lower Costco-related revenues and a decrease in the average discount rate.
Consolidated provisions for losses were $463 million, down 1 percent from $467 million a year ago. Credit quality remained strong during the quarter. The prior period included $57 million of credit costs associated with the cobrand loan portfolio subsequently classified as “Held for Sale” (HFS); the credit costs associated with that portfolio for the current quarter were reported in other operating expenses.
Consolidated expenses were $4.8 billion, down 15 percent from $5.6 billion a year ago. The decrease reflected the gain from the loan portfolio sale, which was reported as an expense reduction. Expenses for the quarter also reflected the previously mentioned restructuring charge, as well as elevated levels of investment spending on growth initiatives. Operating expenses were down 31 percent versus the prior year. Excluding the portfolio sale gain and restructuring charge, adjusted operating expenses were flat.3
The effective tax rate for the quarter was 33 percent, down from 34 percent a year ago.
The company’s return on average equity (ROE) was 26.4 percent, down from 28.1 percent a year ago.
“Operating results were solid this quarter and consistent with the financial outlook we provided earlier in the year,” said Kenneth I. Chenault, chairman and chief executive officer. “We are making good progress on our initiatives to accelerate growth: acquiring 3 million new proprietary cards worldwide; generating additional spending on our global network; expanding merchant coverage; and continuing to meet the borrowing needs of Card Members while maintaining strong credit quality.
“During the quarter, we again made substantial investments in marketing and technology to help grow the business. At the same time, operating expenses continued to be well managed, and we moved forward aggressively with plans to take $1 billion out of our cost base on a run-rate basis by the end of 2017.
“We have returned a record amount of capital to shareholders so far this year, with share repurchases totaling $1.7 billion in the second quarter and a record $2.8 billion year to date. With our completion of the Federal Reserve’s annual stress test, we now plan to increase the quarterly dividend by 10 percent to 32 cents per share and repurchase up to an additional $3.3 billion shares over the next four quarters.
“As expected, the quarter included a substantial gain from the sale of the cobrand loan portfolio and a restructuring charge related to the initiative to reset our expense base. We also continued to see the impact of a lower merchant discount rate and a strong U.S. dollar on our international operations.
“Worldwide billed business grew 3 percent from a year ago. Adjusted for Costco/FX, those volumes rose 8 percent from a year ago. Total loans decreased 13 percent, while adjusted loans rose 13 percent after excluding the “Held for Sale” portfolios and the impact of foreign exchange rates.4 Those adjusted numbers benefited from increased usage of their other American Express Cards by former Costco cobrand Card Members.
“We’re encouraged by progress so far this year and plan to continue spending at elevated levels during the remainder of 2016 in order to capitalize on the opportunities we see in a very competitive marketplace. Notwithstanding that higher level of spending, we expect 2016 results to be at the high end of the range we shared earlier this year.5 Our expectations for 2017 remain unchanged, and we will stay focused on accelerating revenue growth, resetting our cost base and optimizing the investments we’re making in the business.5”
Segment Results
U.S. Consumer Services reported second-quarter net income of $1.1 billion, up 74 percent from $613 million a year ago.
Total revenues net of interest expense decreased 3 percent to $3.2 billion from $3.3 billion a year ago. The decrease primarily reflected the decline in Costco-related revenues from year-ago levels, as well as an increase in cash rebate rewards.
Provisions for losses totaled $237 million, down 2 percent from $243 million a year ago. Credit quality remained strong during the quarter. Certain credit costs associated with the cobrand loan portfolio classified as “Held for Sale” during the quarter were reported in other operating expenses.
Total expenses were $1.3 billion, down 40 percent from $2.1 billion a year ago. The decrease reflected a portion of the gain from the loan portfolio sale, which was reported as an expense reduction. That gain was offset in part by higher levels of investment spending on growth initiatives and a portion of the previously mentioned restructuring charge.
The effective tax rate was 37 percent compared to 35 percent a year ago.
International Consumer and Network Services reported second-quarter net income of $228 million, up 18 percent from $193 million a year ago.
Total revenues net of interest expense were $1.4 billion, up 6 percent (up 11 percent FX-adjusted2) from $1.3 billion a year ago. The increase primarily reflected higher bank partnership revenues and Card Member spending.
Provisions for losses totaled $78 million, up 3 percent from $76 million a year ago.
Total expenses were $1.1 billion, up 4 percent (up 7 percent FX-adjusted2) from $1.0 billion a year ago. The increase reflected higher investment spending on growth initiatives, as well as a portion of the previously mentioned restructuring charge.
The effective tax rate was 17 percent, down from 19 percent a year ago.
Global Commercial Services reported second-quarter net income of $576 million, up 5 percent from $550 million a year ago.
Total revenues net of interest expense were $2.5 billion, unchanged from a year ago.
Provisions for losses totaled $139 million, up 2 percent from $136 million a year ago.
Total expenses were $1.4 billion, down 4 percent from $1.5 billion a year ago. The decrease primarily reflected a portion of the gain from the loan portfolio sale, which was reported as an expense reduction. That benefit was offset in part by a portion of the restructuring charge mentioned earlier and higher levels of investment spending on growth initiatives.
The effective tax rate was 37 percent, up from 35 percent a year ago.
Global Merchant Services reported second-quarter net income of $373 million, up 1 percent from $369 million a year ago.
Total revenues net of interest expense were $1.1 billion, down 3 percent from $1.2 billion a year ago. Higher Card Member spending was offset by a lower average discount rate this quarter.
Total expenses were $547 million, down 7 percent from $586 million a year ago, largely due to the OptBlue program, which represents a growing share of the company’s merchant coverage and does not entail merchant acquirer payments.
The effective tax rate was 38 percent, up from 37 percent a year ago.
Corporate and Other reported second-quarter net loss of $229 million compared with net loss of $252 million a year ago.
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, foursquare.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, corporate card, business travel and corporate responsibility.
This earnings release should be read in conjunction with the Company’s statistical tables for the second quarter 2016, 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 second-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 2016-2017, 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:
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, 2015, the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 and the Company’s other reports filed with the Securities and Exchange Commission.
1 Represents net income less (i) earnings allocated to participating share awards of $17 million and $11 million for the three months ended June 30, 2016 and 2015, respectively, and $28 million and $22 million for the six months ended June 30, 2016 and 2015, respectively, and (ii) dividends on preferred shares of $19 million and $20 million for the three months ended June 30, 2016 and 2015, respectively, and $40 million and $20 million for the six months ended June 30, 2016 and 2015, 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 (i.e., assumes the foreign exchange rates used to determine results for the three months ended June 30, 2016 apply to the period(s) against which such results are being compared). FX-adjusted revenues and expenses constitute non-GAAP measures. The company 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.
4 Adjusted loans excludes for Q2’15 Card Member balances related to cobrand partnerships with Costco in the U.S. and JetBlue, which were reclassified as held for sale effective December 2015 (the HFS portfolios), and the impact of foreign exchange rates. See Appendix I for a reconciliation to Card Member loans held for investment on a GAAP basis. Management believes the presentation of adjusted loans is useful in evaluating the ongoing performance of the company’s loan portfolio.
5 The company’s EPS outlook for 2016 and 2017 remains unchanged. On a GAAP basis, which includes the restructuring charges recognized in the first half of 2016, the EPS outlook for 2016 is between $5.19 and $5.49. The adjusted EPS outlook, a non-GAAP measure, is between $5.40-$5.70 for 2016 (which excludes the restructuring charges recognized in the first half of 2016) and at least $5.60 for 2017. Management is not able to estimate the impact of restructuring charges or other contingencies for the remainder of 2016 or 2017. See Appendix I for a reconciliation to EPS on a GAAP basis. Management believes the presentation of an adjusted EPS outlook is useful as it is consistent with the outlook provided at the company’s Investor Day, at which point restructuring charges and other contingencies were not estimable.
American Express Company (Preliminary) Appendix I Reconciliations of Adjustments (Millions, except percentages and per share information) Quarters Ended June 30, June 30,YOY %
2016 2015Change
Adjusted Operating Expenses
Operating expenses (A) $ 1,921 $ 2,785 (31 ) Gain on sale of Costco portfolio (pre-tax) 1,091 - Restructuring charge (pre-tax) 232 - Adjusted Operating Expenses $ 2,780 $ 2,785 -Total Loans
Card Member loans held for investment and Other loans $ 61.1 $ 70.0 (13 ) Card Member loans held for investment related to cobrand partnerships with Costco in the U.S. and JetBlue (B) - 15.0Total loans held for investment excluding loans related to Costco in the U.S. and JetBlue
$ 61.1 $ 55.0 11Fx Adjusted loans held for investment excluding loans related to Costco in the U.S. and JetBlue (C)
$ 61.1 $ 54.2 132016 Earnings per Share (EPS) Outlook
FY'16 EPS RangeEPS Outlook excluding restructuring charges and other contingencies
$ 5.40 $ 5.70 Q1'16 restructuring charge per share (pre-tax) 0.08 0.08 Tax impact of Q1'16 restructuring charge per share (0.03 ) (0.03 ) After-tax impact of Q1'16 restructuring charge per share $ 0.05 $ 0.05 Q2'16 restructuring charge per share (pre-tax) 0.25 0.25 Tax impact of Q2'16 restructuring charge per share (0.09 ) (0.09 ) After-tax impact of Q2'16 restructuring charge per share $ 0.16 $ 0.16 US GAAP EPS Outlook - Including YTD Restructuring (D) $ 5.19 $ 5.49 Notes: (A) Operating Expenses represent salaries and employee benefits, professional services, occupancy and equipment, communications, and other, net. (B) Costco and JetBlue loans reclassified as held for sale effective December 2015. The Costco and JetBlue portfolios were sold as of June 17, 2016 and March 18, 2016, respectively. (C) FX-adjusted information assumes a constant exchange rate between the periods being compared for purposes of currency translation into U.S. dollars (i.e. assumes the foreign exchange rates used to determine results for Q2'16 apply to the period(s) against which such results are being compared). The Company 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. (D) Reflects restructuring charges recognized in the first half of 2016. Management is not able to estimate restructuring charges or other contingencies for the remainder of 2016.
View source version on businesswire.com: http://www.businesswire.com/news/home/20160720006367/en/
Media:Marina H. Norville, 212-640-2832marina.h.norville@aexp.comorInvestors/Analysts:Ken Paukowits, 212-640-6348ken.f.paukowits@aexp.comorToby Willard, 212-640-5574sherwood.s.willardjr@aexp.com
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