American Express Co.
), also known as AmEx, reported its third-quarter 2012 operating
earnings per share of $1.09, which came in line with the Zacks
Consensus Estimate but climbed from $1.03 recorded in the
year-ago quarter, primarily on lower share count.
Meanwhile, net income from operations edged up 1% year over
year to $1.25 billion from $1.23 billion in the year-ago period.
However, no extraordinary items or results from discontinued
operations were recorded during the reported 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,
while disciplined expense control supported the bottom line.
However, healthy top-line and earnings growth were partially
offset by higher-than-expected provision for losses, higher tax
rate and lower return on average equity (ROE).
AmEx' total billed business, or global card spending,
continued to witness improvement in the U.S. and beyond climbing
6% year over year to $220.1 billion. The increase came from
international cards-in-force that escalated 9% year over year to
$49.6 million and after adjusting for foreign currency
translations, this grew 8% year-over-year, while cards-in-use
improved 3% in the U.S.
Behind the Headlines
AmEx posted total revenue, net of interest expenses, of $7.86
billion, up 4% year over year from $7.57 billion. However,
revenues fell short of the Zacks Consensus Estimate of $7.91
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.
However, provisions for losses were $479 million, spiking 92%
from $249 million in the prior-year quarter. The increase was
driven primarily by lower reserve release, partially offset by
lower net write-offs in the reported quarter.
Meanwhile, AmEx's total expenses inched down 2% year over year
to $5.5 billion in the reported quarter, reflecting radical
decline in card member rewards and stable market and promotion
expenses that were partially offset by higher cost of card member
services and other operating expenses. Tax rate escalated 33%
from 28% in the year-ago quarter, as the company realized some
foreign tax credits in the prior-year period.
U.S. Card Services
reported a net income of $699 million, down 5% from $733 million
in the prior-year quarter. Total revenue, net of interest
expenses, increased 6% to $4.1 billion from $3.8 billion in the
International Card Services
net income came in at $164 million, plunging 26% from $221
million in the year-ago quarter. However, total revenue, net of
interest expenses, came in at $1.3 billion, down 3% from the
year-ago quarter, driven by low net interest income.
Global Commercial Services
net income dipped 7% to $183 million from $197 million in the
prior-year quarter. Total revenue, net of interest expense,
inched up 2% year over year to $1.2 billion, reflecting higher
spending by corporate card members, while business travel
commissions and fees declined.
Global Network & Merchant Services
reported a net income of $360 million, up 8% from $324 million in
the prior-year quarter. Total revenue, net of interest expense,
increased 5% year over year to $1.3 billion, driven by higher
Corporate & Other
reported net loss of $156 million compared with a net loss of
$248 million a year ago. The results in the year-ago quarter
included settlements worth $70 million with
As of September 30, 2012, AmEx's total assets stood at $153
billion (flat from 2011-end), while long-term debt totalled $56
billion (down from $60 billion) against cash of $25 billion (in
line with 2011-end). Meanwhile, shareholder's equity totalled $19
billion at the end of the reported quarter, unchanged from
As of September 30, 2012, AmEx' ROE was 26.3%, down from 27.8%
in the year-ago period. Return on average common equity (ROCE)
was 26.0%, dipping from 27.5% in prior-year quarter. As well,
return on average tangible common equity was 33.5%, also down
from 35.7% in the comparable quarter last year. However, book
value increased 12% year over year to $17.37 per share.
On September 24, 2012, the board of AmEx declared a regular
quarterly dividend of 20 cents per share, which is payable on
November 9, 2012 to shareholders of record as on October 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 creating 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 also helping it
to 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
) and Visa in 2011.
As a result, we maintain our long-term Neutral stance 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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