American Express Co.
), also known as AmEx, reported fourth-quarter 2011 operating
earnings of $1.01 per share, a penny above the Zacks Consensus
Estimate but comfortably ahead of 88 cents recorded in the year-ago
Meanwhile, net income from operations increased 12% year over
year to $1.19 billion from $1.06 billion in the year-ago period.
However, no extraordinary items were recorded during both the
AmEx continues to benefit from an improved credit quality with
an increased usage of cards and lesser defaults, across all
business segments. Higher spending also drove earnings and return
on average equity (ROE). However, healthy top-line growth and
flattish expense growth were partially offset by
higher-than-expected provision for losses, plunge in loan
portfolio, higher tax-rate and lower interest income.
AmEx' average basic card members' spending increased 8.4% over
the prior-year quarter. The increase came from international cards
in force that rose about 11.0% year over year to $46.8 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 $7.74
billion, up 7% year over year from $7.24 billion while slightly
exceeding the Zacks Consensus Estimate of $7.91 billion.
Additionally, the upside in revenues was supported by higher
spending and higher travel commissions from card members. This was
partially offset by sluggish growth in interest income and lower
yields on the loan portfolio.
Provisions for losses were $409 million, surging 71% from $239
million in the prior-year quarter. The increase was driven
primarily by larger reserve release in the year-ago period and
loans outstanding in the reported quarter, partially offset by
lower net write-offs in the reported quarter. Meanwhile, lending
balances and yield continued to remain sluggish.
However, total expenses of AmEx inched up 1% to $5.59 billion in
the reported quarter, reflecting radical decline in operating
expenses growth that were partially offset by escalated cost of
card member rewards and services . Besides, restructuring and other
reengineering costs declined to $49 million ($32 million after-tax)
in the reported quarter against $113 million ($74 million
after-tax) in the year-ago period. However, tax rate witnessed an
uptick across most business segments.
U.S. Card Services
reported a net income of $727 million, up 4% from $700 million
incurred in the prior-year quarter. Total revenues, net of interest
expenses, increased to $3.9 billion from $3.7 billion, up 5% year
International Card Services
net income came in at $152 million, up by a substantial 54% from
$99 million in the year-ago quarter. Total revenues, net of
interest expenses, were $1.3 billion, up 8% from the year-ago
quarter, driven by higher cardmember spending and revenues related
to Loyalty Partner acquisition, partially offset by lower net
Global Commercial Services
net income surged 75% to $180 million from $103 million in the
prior-year quarter. Total revenue, net of interest expense,
increased 11% year over year to $1.2 billion, reflecting increased
spending by corporate card members and higher travel commissions
Global Network & Merchant Services
reported a net income of $324 million, up 25% from $259 million in
the prior-year quarter. Total revenue, net of interest expense,
increased 12% year over year to $1.3 billion. The company's total
billed business continued to witness improvement in the U.S. and
beyond, climbing 11% year over year to $219 billion.
Corporate & Other
reported net loss of $191 million compared with a net loss of $99
million a year ago. The results for reported quarter reflect an
income of $70 million ($43 million after-tax) for the previously
) settlements. The year-ago quarter included $70 million and $150
million ($93 million after-tax) from the Visa and
Full-Year 2011 Highlights
For full year 2011, AmEx reported operating net income of $4.9
billion or $4.09 per share against $4.06 billion or $3.35 per share
in 2010. Earnings per share also exceeded the Zacks Consensus
Estimate by three pennies. Reported net income came in at $4.94
billion or $4.12 per share against $4.06 billion or $3.35 per share
Total revenue, net of interest expenses, was $30.0 billion, up
9% year over year from $27.6 billion while marginally exceeding the
Zacks Consensus Estimate of $30.12 billion. AmEx' average basic
card members' spending increased 12.2% over the prior year. Total
expenses increased 13% over 2010 to $21.89 billion, while provision
for losses plunged 50% year over year to $1.11 billion.
As of December 31, 2011, AmEx's total assets stood at $153
billion (up from $147 billion at end of 2010), while long-term debt
totaled $60 billion (down from $66 billion) against cash of $25
billion (up from $16 billion). Besides, shareholder's equity
totaled $18.8 billion at the end of 2011, up from $16.2 billion at
As of December 31, 2011, AmEx' ROE was 27.7%, up from 27.5% at
2010-end. Return on average common equity (ROCE) was 27.3%, up from
27.2% in 2010. Besides, return on average tangible common equity
was 35.8%, up from 35.1% at 2010-end. Moreover, book value
increased 19% year over year to $16.15 per share.
AmEx has pulled itself out of the recession more quickly than
its rivals, owing to its creditworthy customers, while its
spend-centric model has also improved its overall risk profile.
Besides, there has been an impressive recovery in credit trends,
with increased card spending and strong billings over the past
year. Besides, the company appears to initiate disciplined expense
management with the extinguishment of the settlement payments with
MasterCard and Visa that ended in 2011.
A challenging regulatory environment is expected to make AmEx'
credit cards costlier and will in turn result in lower interest
income and loan fee income. On the other hand, the volatile
economic outlook raises near-term caution. However, we believe the
company is focusing on product diversification such as no-fee
prepaid cards. Alongside, AmEx has been upgrading its digital
payment platform through strategic alliances, which will not only
expand the company's card membership base but also help it
penetrate the unexplored market and tap the upcoming opportunities
in the field of eCommerce.
On Thursday, the shares of American Express closed at $50.95, up
0.8%, at the New York Stock Exchange.
AMER EXPRESS CO (
): Free Stock Analysis Report
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): Free Stock Analysis Report
VISA INC-A (
): Free Stock Analysis Report
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