Wikipedia / Magnus Manske.
strong results in the second quarter of 2014, as its earnings per
share jumped 13% relative to last year to stand at $1.43. It
topped analyst expectations, and while it did see a partial gain
resulting from the spinoff of one of its businesses into a joint
venture, it still steadily performed on all cylinders.
And after examining the remarks of the company's CFO, Jeffrey
Campbell, as the results were discussed, there are five things
investors need to know about the performance of American Express
in the second quarter.
1. Business as usual
We believe that our underlying operating performance
continues to demonstrate the strength and flexibility of our
business model. And you will recognize some familiar themes in
the quarter, including higher spending by our card members,
modest growth in the loan portfolio, credit indicators at or
near historical lows, disciplined control of operating
expenses, and a strong balance sheet that enabled us to return
a substantial amount of capital to shareholders in the form of
share repurchases and dividends over the past year.
To start, it's important to remember more often than not,
quarterly earnings results -- particularly in the case of massive
companies like American Express -- will often not have
revolutionary insights or reveal dramatic changes about the
And that was certainly the case with this quarter for American
Express, because while there was change -- and we'll get to that
-- by and large, it's critical to see it foundational operations
are continuing to impressively hum along, even if it isn't
Does this mean we shouldn't track and carefully analyze those
earnings? Of course not. But just because something exciting
didn't occur doesn't mean we should think it was a bad quarter.
In fact, I would argue, knowing the success America has had
through the decades, seeing "familiar themes" is exactly what we
should hope for.
2. New initiatives are performing well
I'll also note that the new EveryDay product has performed
well, relative to our expectations, since its launch a few
months ago. But it is, of course, far too early for the product
to have any meaningful impact on our overall levels of loan
Having said that, there were smaller bits of news that are
important to be aware of, and this is certainly one of them. In
February of this year, American Express
it would be offering a no-fee version of its cards called the
EverDay card in an effort to "be a more inclusive and welcoming
Although these efforts will not have an impact to shareholders
for years and years to come, laying a solid foundation over the
first few months is encouraging news, and could indicate while we
may be years away, these efforts could have a sizable impact.
3. Credit improved to record levels, but that isn't the
[O]ur credit metrics are near or at historical low levels.
Worldwide, lending write-off and delinquency rates decreased in
the quarter, with our delinquency rate reaching an all-time low
at 1%. As we've said previously, our goal is not to have the
lowest possible write-off rate, but is instead to achieve the
best returns on our portfolio. Therefore, we would continue to
expect that lending write-off rates will increase somewhat from
these low levels, at some point.
Knowing the delinquency rate -- of the loans that it has
issued, the number which are currently not making payments -- of
American Express hit an "all-time low at 1%," and was less than
half of the industry average of 2.2%, it is easy to think
Campbell would be ecstatic.
Yet it's important to see what American Express hopes for is
that it would instead be achieving "the best returns" possible.
While this can undoubtedly lead to risky behavior and should be
carefully monitored, the fact its CFO desires profitability that
is ultimately delivered to its shareholders is an encouraging
4. Innovation is here
We also continue to be at the forefront of connecting
consumers and merchants in new and innovative ways through
digital capabilities. Our recent partnership with Uber, which
creates an elegant seamless experience for US card members to
earn or redeem membership rewards points within the Uber mobile
app, is the latest example of how we are leveraging unique
technology to create value for merchants and consumers. While
it is still early days for many of our digital initiatives, we
are excited about the new capabilities we are developing in
With all the talk surrounding the future of the payments
industry and what it could look like in the coming years
from the American Express CEO, Ken Chenault --
have begun to wonder about what the future may behold.
So, to learn that American Express is actively pursuing
opportunities to stay at the forefront of the industry, even if
they are simple things like ensuring its cardholders can use
rewards at other companies, means it is doing all it can to
ensure it will remain in its commanding market position.
5. The results of the legal battle are months and
The trial is expected to end later this quarter, and will be
followed by the issuance of a decision, which could take
several months or longer to complete. There will then likely be
a lengthy appeals process. As much as we might like to, I don't
think it's appropriate or beneficial for us to offer color
commentary on any of the specific testimony. We will make our
argument where it matters, in the courtroom. We believe that
our legal defense is strong, but ultimately, it will be up to
the courts to decide.
Lurking in the shadows of American Express are the questions
surrounding what the ultimate verdict of the Justice Department's
it -- related to its pricing of transactions -- will be, and what
the possible impact could be to the company. But the reality that
the lawsuit was first announced in October 2010 and is still a
long way off reveals the true depth of what is at stake.
For the time being, this isn't something that should guide an
investor's decision, but it is certainly one thing to keep an eye
Your credit card may soon be completely worthless
The plastic in your wallet is about to go the way of the
typewriter, the VCR, and the 8-track tape player. When it
does, a handful of investors could stand to get very rich.
You can join them -- but you must act
new presentation reveals the full story on why
your credit card is about to be worthless
-- and highlights one little-known company sitting at the
epicenter of an earth-shaking movement that could hand early
investors the kind of profits we haven't seen since the dot-com
to watch this stunning video.
5 Things American Express Company's Management
Wants You to Know
originally appeared on Fool.com.
has no position in any stocks mentioned. The Motley Fool
recommends American Express. Try any of our Foolish newsletter
free for 30 days
. We Fools may not all hold the same opinions, but we all believe
considering a diverse range of insights
makes us better investors. The Motley Fool has a
Copyright © 1995 - 2014 The Motley Fool, LLC. All rights
reserved. The Motley Fool has a