American Express Q2 Earnings Beat Estimates, Decline Y/Y
American Express Co. AXP delivered second-quarter 2020 earnings of 29 cents per share, beating the Zacks Consensus Estimate by 123%. However, the bottom line plunged 86% year over year.
The quarter also reflected softness in spending volumes as a result of the adverse COVID-19 impact.
Further, total revenues of $7.7 billion missed the Zacks Consensus Estimate by 2.5% and also declined 28.7% year over year. The top line was affected by a drop in Card Member spending and lower average discount rate.
Meanwhile, total expenses of $5.5 billion decreased 29% year over year owing to lower customer engagement costs on the back of limited Card Member spending as well as controlled usage of travel-related Card Member benefits.
Total provision of $1.6 billion soared 86% year over year as the company added $628 million to its capital reserves in a bid to strengthen its balance sheet in the light of a significant deterioration in the global macroeconomic outlook as a result of the coronavirus adversity.
Return on equity of 18.9% declined 1450 basis points year over year.
Lackluster Performance at Segments
American Express’ Global Consumer Services segment reported net income of $527 million, down 40% year over year. Total revenues, net of interest expenses of $4.6 billion decreased 23% year over year, reflecting a fall in Card Member spending and a lower average discount rate from the prior-year levels.
Global Commercial Services incurred a net loss of $60 million against net income of $561 million a year ago. Total revenues, net of interest expenses, were $2.3 billion. This, in turn, plunged 30.3% year over year, mirroring a decline in Card Member spending and a lower average discount rate.
Global Merchant and Network Services’ net income plummeted 88% year over year to $66 million in the reported quarter. Total revenues and net of interest expenses were down 41% year over year to $929 million.
Strong Financial Position (as of Jun 30, 2020)
Cash and cash equivalents were $41 billion, up 52% year over year. Total long-term debt of $49 billion was down 15.5% year over year.
The company recently launched its largest-ever Shop Small campaign and committed more than $200 million over the next three months to help jumpstart spending at small merchants in more than a dozen countries, globally.
The company extended its digital solutions for its commercial customers with the recent launch of American Express One AP, its first proprietary accounts payable automation offering. For its merchant partners, it raised its contactless transaction thresholds across 60 countries around the world. It also became the first foreign payments network to be licensed to clear local currency transactions in mainland China.
American Express carries a Zacks Rank #3 (Hold), currently. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some stocks in the same space poised to deliver a positive earnings surprise this time around are as follows:
Global Payments Inc. GPN has an Earnings ESP of +9.29% and a Zacks Rank of 3, currently.
Mastercard Inc. MA has an Earnings ESP of +1.27% and is Zacks #3 Ranked at present.
PayPal Holdings, Inc. PYPL has an Earnings ESP of +3.96% and is a #3 Ranked player at present.
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