American Express Co.
), also known as AmEx, reported second-quarter 2012 operating
earnings per share of $1.15 that was modestly higher than the Zacks
Consensus Estimate of $1.10 and $1.07 recorded in the year-ago
Meanwhile, net income from operations edged up 3% year over year
to $1.34 billion from $1.3 billion in the year-ago period. However,
no extraordinary items were recorded during the reported quarter,
while income from discontinued operations of $36 million or 3 cents
per share was recorded in the year-ago quarter.
AmEx continues to benefit from an improved credit quality with
an increased usage of cards and fewer defaults, across all business
segments. Superior market network and moderate growth in spending
and loan portfolio also drove the net interest income. However,
healthy top-line and earnings growth were partially offset by
higher-than-expected provision for losses and expense growth,
higher tax rate and lower return on average equity (ROE).
AmEx's total billed business, or global card spending, continued
to witness improvement in the U.S. and beyond climbing 7% year over
year to $221.6 billion. After adjusting for foreign currency
translations, card spending grew 9% year-over-year. The increase
came from international cards-in-force that rose about 11% year
over year to $48.9 million while cards-in-use grew 3.0% year over
year in the US.
Behind the Headlines
AmEx posted total revenue, net of interest expenses, of $7.97
billion, up 5% year over year from $7.62 billion. However, the
revenues fell short of the Zacks Consensus Estimate of $8.11
billion. The upside in revenues was supported by moderate growth in
card spending, net interest income and the loan portfolio. Further,
lending balances and yield exhibited stability.
Provisions for losses were $461 million, surging 29% from $357
million in the prior-year quarter. The increase was driven
primarily by larger reserve release in the year-ago period,
partially offset by lower net write-offs in the reported
However, AmEx's total expenses edged up 2% year over year to
$5.63 billion in the reported quarter, reflecting an escalated cost
of card member services and other operating expenses that were
partially offset by radical decline in market and promotion
expenses and card member rewards. Even tax escalated 29% from 27%
in the year-ago quarter, as the company realized some foreign tax
U.S. Card Services
reported a net income of $718 million, up 8% from $665 million in
the prior-year quarter. Total revenue, net of interest expenses,
increased 7% to $4.0 billion from $3.8 billion in the year-ago
International Card Services
net income came in at $178 million, escalating 11% from $161
million in the year-ago quarter. However, total revenue, net of
interest expenses, came in at $1.3 billion, down 4% from the
year-ago quarter, driven by low net interest income.
Global Commercial Services
net income jumped 24% to $219 million from $177 million in the
prior-year quarter. Total revenue, net of interest expense,
increased 3% year over year to $1.2 billion, reflecting higher
spending by corporate card members, while business travel
commissions and fees remained stable.
Global Network & Merchant Services
reported a net income of $372 million, up 15% from $324 million in
the prior-year quarter. Total revenue, net of interest expense,
increased 7% year over year to $1.3 billion, driven by higher
Corporate & Other
reported net loss of $148 million compared with a net loss of $32
million a year ago. The results in the year-ago quarter included
settlements worth $70 million and $150 million with
As of June 30, 2012, AmEx's total assets stood at $148 billion
(down from $153 billion at end of 2011), while long-term debt
totalled $56 billion (down from $60 billion) against cash of $22
billion (down from $25 billion). Meanwhile, shareholder's equity
totalled $19 billion at the end of the reported quarter, unchanged
As of June 30, 2012, AmEx's ROE was 26.6%, down from 28.2% in
the year-ago period. Return on average common equity (ROCE) was
26.3%, dipping from 27.9% in prior-year quarter. Return on average
tangible common equity was 34.1%, also down from 36.1% in the
comparable quarter last year. However, book value increased 11%
year over year to $16.92 per share.
On May 10, 2012, AmEx paid a regular quarterly dividend of 20
cents per share to shareholders of record as on April 5, 2012. In
March 2012, this dividend was hiked by 11% from the prior 18 cents,
which was sustained even during the recession period.
Despite a challenging regulatory environment and volatile
economic outlook that sparks near-term concerns, AmEx is expected
to continue to create valued accretion in its interest income and
loan portfolio. The company has been able to improve its risk
profile through its spend-centric business model and creditworthy
customers. We believe that the company's focus on product
diversification such as no-fee prepaid cards along with other
innovative card products is contributing to the upside.
Moreover, AmEx has been upgrading its digital payment platform
through strategic alliances, which is not only expanding the
company's card membership base and billings but is also helping it
penetrate the unexplored market and tap the upcoming opportunities
in the field of e-commerce. Going ahead, the company appears to
initiate disciplined expense management with the termination of the
settlement payments with MasterCard and Visa in 2011.
As a result, we maintain our long-term Neutral recommendation on
the stock with a Zacks Rank #3, which implies a short-term Hold
AMER EXPRESS CO (AXP): Free Stock Analysis
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