AmEx (AXP) Q3 Earnings Miss Due to Lower Spending on Its Cards

American Express Co. AXP reported third-quarter 2020 earnings of 1.30 per share, missing the Zacks Consensus Estimate by 6.5%. Also, the bottom line plunged 38% year over year.

Earnings in the third quarter took a hit from weak spending volumes as a result of the adverse COVID-19 impact.

Even though total revenues of $8.75 billion beat the Zacks Consensus Estimate by 1.2%, the same declined 20% year over year. The top line was affected by a drop in Card Member spending and lower average discount rate.

Meanwhile, total expenses of $6.7 billion decreased 14% 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 $665 million was down 24% year over year due to a modest reserve release and lower net write-offs.

Return on equity of 15.9% declined 1730 basis points year over year.

American Express Company Price, Consensus and EPS Surprise American Express Company Price, Consensus and EPS Surprise

American Express Company price-consensus-eps-surprise-chart | American Express Company Quote

Lackluster Segmental Performances

American Express’ Global Consumer Services segment reported net income of $855 million, down 13.7% year over year. Total revenues, net of interest expenses of $5.2 billion decreased 16% year over year, reflecting a fall in Card Member spending and loan volumes.

Global Commercial Services reported net income of $220 million, down 61.3% year  over year. Total revenues, net of interest expenses, were $2.5 billion. This, in turn, plunged 23% year over year, mirroring a decline in Card Member spending and a lower average discount rate.

Global Merchant and Network Services’ net income plummeted 49.7% year over year to $263 million in the reported quarter. Total revenues and net of interest expenses were down 27% year over year to $1.1 billion.

Strong Financial Position (as of Sep 30, 2020)

Cash and cash equivalents were $33 billion, up 38% year over year. Total long-term debt of $45 billion was down 22% year over year.

Business Update

During the quarter, the company announced that it will provide a Pay Over Time facility to the holders of Green, Gold and Platinum Business Cards. The cardholders who are basically small business owners will avail of this facility starting this November.  The service will also be available to the new and existing cardholders.

The company also entered into an agreement to acquire Kabbage, a leading financial technology company. This buyout is set to close later this year, furthering American Express’ plans to offer U.S. small businesses an easy and efficient way to manage their payments and cash flow digitally in one place.

Zacks Rank

American Express carries a Zacks Rank #4 (Sell), currently.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stocks to Consider

Some stocks worth considering with the apt combination of elements to surpass estimates this reporting cycle are as follows:

Green Dot Corporation GDOT has an Earnings ESP of +5.88% and a Zacks Rank #3, currently.  

Global Payments Inc. GPN has an Earnings ESP of +3.25% and a Zacks Rank of 3 at present.

Mastercard Inc MA has an Earnings ESP of +2.24% and is Zacks #3 Ranked.

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