are in, and while the results were impressive, they also reveal a
clear picture of one thing investors love to see.
The strong second quarter
As a result of increased spending from its customers, which
brought in more fees and higher interest income, American Express
saw its net income rise 9% in the second quarter to stand at $1.5
billion. It also saw its revenue grow to $8.7 billion, a gain of
5% over the second quarter of last year.
Its earnings per share stood at $1.43, a solid surpassing of
the $1.38 expected by analysts. But it must be noted it did
recognize a $0.05 gain from it spinning off half of its Global
Business Travel unit in a joint venture at the end of June.
Source: Flickr / Images_of_Money
In total the purchases made by customers on their American
Express cards rose by 9% to stand at $258 billion. This resulted
from both an increase in its cards in force, which increased by a
little more than 5.5 million to 110 million, and it's the average
spending of its basic card holders grew 5% to $4,288.
Encouragingly, American Express also continued to see
improvements in the credit quality of its customers -- CEO
Kenneth Chenault noted in his prepared remarks "the strong
underlying performance this quarter reflected a continuation of
some familiar themes," including "credit metrics at or near their
historic lows" -- as its net write-off rate fell from 2% in the
second quarter of 2013 to 1.6% in the most recent quarter.
And while all those results were undoubtedly good, it turns
out one number is critical for investors to see.
The true beauty of share buybacks
One of the most fascinating things about American Express, which
I didn't mention explicitly, was that while its income was up 9%,
its earnings per share rose 13%.
Of course, part of the reason behind the strength of those
gains is attributable to the sale of its global business
division, but if even if that didn't occur there would still be a
disparity between the growth in its bottom line net income and
that of its earnings per share.
This is because in the last year alone, American Express has
reduced its shares by more than 4%. Because of this, the strong
gains in the results from core operates was compounded even
further, and the money available to shareholders was even
But it turns out this was nothing new, and over the last three
years, its shares outstanding are down more than 12%:
have also been slowly but surely reducing their shares -- and
thus boosting the possible returns to owners -- banks like
Bank of America
actually have more today than they did previously.
And shown a little differently, you can see since 2011, the
net income American Express has steadily grown by 15%, but thanks
to its aggressive share repurchases, the earnings available to
its shareholders has grown at a rate twice as fast:
Source: S&P Capital IQ
All of this is to say, American Express isn't just seeing
strong improvements in core results, but it is also clearly doing
even more to ensure it is delivering the money it earns back to
In fact, in the second quarter, 87% of the capital generated
by American Express ended up back in the hands of shareholders
through either share repurchases or dividends paid out.
The Foolish bottom line
In earnings season we can so easily get caught up in the top or
bottom line numbers, or how well a company fared relative to the
expectation of analysts. But examples like this reveal the
critical importance of gauging the long-term performance.
And it turns out American Express has continued to deliver
impressive results both in the last three months and the last
Your credit card may soon be completely worthless
While things have been great for American Express, the reality
is, the plastic in your wallet is about to go the way of the
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You can join them -- but you must act
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American Express Company Earnings: The True
Beauty of Share Buybacks
originally appeared on Fool.com.
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