Raises Full Year
Guidance and Reaffirms 2017 Outlook
American Express Company (NYSE:AXP) today reported
third-quarter diluted earnings per share of $1.20, down 3 percent
from $1.24 a year ago. Excluding a restructuring charge related to
cost reduction efforts, adjusted diluted earnings per share was
$1.24.2
(Millions, except percentages and per
share amounts)
Quarters Ended
September 30,
Percentage
Inc/(Dec)
Nine Months Ended
September 30,
Percentage
Inc/(Dec)
2016
2015 2016
2015 Total
Revenues Net of Interest Expense $ 7,774
$ 8,193 (5) $ 24,097
$ 24,427 (1) Net Income
$ 1,142 $ 1,266 (10)
$ 4,583 $ 4,264 7
Earnings Per Common Share – Diluted:
Net Income Attributable to Common
Shareholders1
$ 1.20 $ 1.24 (3)
$ 4.76 $ 4.15 15
Average Diluted Common Shares Outstanding 923
997 (7) 943
1,011 (7) Return
on Average Equity 26.1 %
26.8 % 26.1 % 26.8
%
Third-quarter net income was $1.1 billion, down 10 percent from
$1.3 billion a year ago.
The current quarter included higher spending on growth
initiatives, largely reflected in marketing and promotion expenses,
as well as solid progress related to company’s efforts to reduce
its cost base. Credit quality remained strong, and the company
returned a substantial amount of capital to shareholders through
share repurchases and dividends. Year-ago results included business
related to the company’s relationship with Costco that ended
earlier this year.
Third-quarter consolidated total revenues net of interest
expense were $7.8 billion, down 5 percent from $8.2 billion a year
ago. Excluding the impact of Costco-related revenues in the year
ago-period, adjusted revenues net of interest expense increased 5
percent, reflecting a rise in Card Member spending, along with
higher net interest income and net card fees.3
Consolidated provisions for losses were $504 million, down 5
percent from $529 million a year ago. The prior year included
credit costs associated with cobrand portfolios that were sold
earlier this year. Excluding the impact of those cobrand
portfolios, adjusted provisions for losses increased 6 percent,
primarily reflecting higher loan growth.4
Consolidated expenses were $5.5 billion, down 3 percent from
$5.7 billion a year ago. The prior year included Costco-related
rewards costs, and an impairment of goodwill and technology assets.
The current quarter reflected the higher levels of investment
spending on growth initiatives and the restructuring charge
mentioned above. These were offset in part by lower technology
costs. Operating expenses were down 3 percent versus the prior
year.5
The effective tax rate for the quarter was 34 percent, down from
35 percent a year ago.
The company’s return on average equity (ROE) was 26 percent,
down from 27 percent a year ago.
“Strong operating discipline and credit quality helped to keep
us ahead of the 2016 financial outlook that we first provided at
the beginning of the year,” said Kenneth I. Chenault, chairman and
chief executive officer. “While reported revenues were down 5
percent, we saw underlying revenue growth of 5 percent after
adjusting for the absence of Costco-related business this quarter –
slightly faster than comparable second-quarter levels.3 Adjusted
billed business was up 7 percent, adjusted loan growth remained
healthy and net card fees rose 10 percent, reflecting strong
performance across our premium card portfolios.
“The underlying performance reflected our broad, diversified
business model as well as the relationships we’ve built over many
years with Card Members who value the range of benefits and service
that come with membership. Strength in our consumer business,
growth internationally, the benefits of a larger merchant network
and a broader presence among smaller and mid-sized companies offset
softness in spending by large corporate Card accounts.
“Separate from our operating results,” Mr. Chenault said, “we
received a favorable ruling in our ongoing antitrust litigation
with the U.S. Department of Justice. By reversing an earlier lower
court decision, the appellate judges upheld provisions within our
merchant contracts that protect consumer choice, support
competition and allow us to deliver superior products and services
to our customers.
“Going forward we remain focused on three priorities: accelerate
revenue growth, reset our cost base and optimize our investments.”
Mr. Chenault added, “We’re making progress on initiatives that
include a renewed emphasis on our Platinum Card portfolios, which
provide service, access and benefits that have been the benchmark
of value for more than 30 years. We’re launching our most extensive
campaign yet to build on the success of Small Business Saturday and
drive additional spending at neighborhood businesses in a way that
leverages the ongoing expansion of our merchant network in the U.S.
In addition, we’re going to continue to utilize digital marketing
capabilities that helped to bring on a record 5.9 million new cards
across our U.S. issuing businesses and 8.5 million cards globally
this year. With these and other initiatives coming together at the
start of the peak shopping season, we expect it to be a very active
fourth quarter and we’ll be supporting all of our work with an
extensive advertising campaign.
“The year-to-date progress gives us greater confidence to
substantially increase our investment spending during the remainder
of the year and, at the same time, raise our 2016 earnings
guidance. While there’s more work and more challenges ahead, the
investments we’re making are designed to position us for
profitable, sustainable growth over the longer term, and we remain
on track to earn at least $5.60 per share in 2017.”
The company now expects GAAP earnings per share for 2016 to be
between $5.65 and $5.75, which includes the restructuring charges
taken in the first three quarters of 2016. The adjusted earnings
per share outlook, which excludes restructuring charges, is now
$5.90 to $6.00. This is higher than the prior estimate of adjusted
full year earnings per share at the high end of the company’s
initial $5.40 to $5.70 range.6
Segment Results
U.S. Consumer Services reported third-quarter net income
of $401 million, down 26 percent from $542 million a year ago. The
year-ago period included Costco-related revenues, provisions and
expenses.
Total revenues net of interest expense decreased 13 percent to
$2.9 billion, from $3.3 billion a year ago.
Provisions for losses totaled $275 million, down 6 percent from
$294 million a year ago.
Total expenses were $2.0 billion, down 7 percent from $2.2
billion a year ago. The prior year included Costco-related rewards
costs, offset by higher investment spending on growth initiatives
this quarter.
The effective tax rate was 35 percent compared to 37 percent a
year ago.
International Consumer and Network Services reported
third-quarter net income of $155 million, up 1 percent from $154
million a year ago.
Total revenues net of interest expense were $1.4 billion, up 5
percent (up 7 percent FX-adjusted7) from $1.3 billion a year ago.
The increase primarily reflected higher Card Member spending and
net card fees.
Provisions for losses totaled $84 million, up 9 percent from $77
million a year ago.
Total expenses were $1.1 billion, up 5 percent (up 7 percent
FX-adjusted7) from $1.0 billion a year ago. The increase reflected
higher investment spending on growth initiatives.
The effective tax rate was 25 percent, up from 23 percent a year
ago.
Global Commercial Services reported third-quarter net
income of $466 million, unchanged from a year ago. The year-ago
period included Costco-related revenues, provisions and
expenses.
Total revenues net of interest expense were $2.4 billion,
unchanged from a year ago. The prior year included Costco-related
revenues, offset by higher Card Member spending and higher net card
fees in the current quarter.
Provisions for losses totaled $134 million, down 9 percent from
$148 million a year ago.
Total expenses were $1.6 billion, up 1 percent from $1.5 billion
a year ago. The current quarter reflected higher investment
spending to support growth initiatives.
The effective tax rate was 36 percent, down from 37 percent a
year ago.
Global Merchant Services reported third-quarter net
income of $359 million, down 10 percent from $397 million a year
ago. The year-ago period included Costco-related revenues.
Total revenues net of interest expense were $1.1 billion, down 6
percent from $1.2 billion a year ago.
Total expenses were $525 million, unchanged from a year ago. The
year-ago period benefited from a litigation reserve reversal.
Expenses for the current quarter benefited from growth of the
OptBlue program, which does not include merchant acquirer
payments.
The effective tax rate was 37 percent, unchanged from a year
ago.
Corporate and Other reported third-quarter net loss of
$240 million compared with net loss of $295 million a year ago.
About American Express
American Express is a global services company, providing
customers with access to products, insights and experiences that
enrich lives and build business success. Learn more
at americanexpress.com and connect with us
on facebook.com/americanexpress,
foursquare.com/americanexpress, linkedin.com/company/american-express,
twitter.com/americanexpress,
and youtube.com/americanexpress.
Key links to products, services and corporate responsibility
information: charge and credit cards, business credit cards, Plenti
rewards program, travel services, gift cards, prepaid cards,
merchant services, corporate card, business travel and
corporate responsibility.
This earnings release should be read in conjunction with the
Company’s statistical tables for the third quarter 2016, available
on the American Express website at
http://ir.americanexpress.com and in a Form 8-K filed
today with the Securities and Exchange Commission.
An investor conference call will be held at 5:00 p.m. (ET) today
to discuss third-quarter earnings results. Live audio and
presentation slides for the investor conference call will be
available to the general public on the above-mentioned American
Express Investor Relations website. A replay of the conference call
will be available later today at the same website address.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING
STATEMENTS
This release includes forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995,
which are subject to risks and uncertainties. The forward-looking
statements, which address the Company’s expected business and
financial performance and which include management’s outlook for
2016-2017, among other matters, contain words such as “believe,”
“expect,” “estimate,” “anticipate,” “intend,” “plan,” “aim,”
“will,” “may,” “should,” “could,” “would,” “likely,” and similar
expressions. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date
on which they are made. The Company undertakes no obligation to
update or revise any forward-looking statements. Factors that could
cause actual results to differ materially from these
forward-looking statements, include, but are not limited to, the
following:
- the Company’s ability to achieve its
earnings per common share outlook for 2016 and 2017, which will
depend in part on the following: revenues growing consistently with
current expectations, which could be impacted by, among other
things, weakening economic conditions in the United States or
internationally, a decline in consumer confidence impacting the
willingness and ability of Card Members to sustain spending, a
further decline in airfare and gas prices, a further strengthening
of the U.S. dollar, a greater erosion of the average discount rate
than expected, a greater impact on discount revenue from cash back,
GNS volumes and cobrand partner and client incentive payments, more
cautious spending by large and global corporate Card Members and
lower spending on new cards acquired than estimated; the Company’s
success in addressing competitive pressures and implementing its
strategies and business initiatives, including growing profitable
spending from new and existing Card Members, increasing penetration
among middle market and small business clients, expanding its
international footprint and increasing merchant acceptance; the
level of spend in bonus categories on rewards-based and/or
cash-back cards and redemptions of Card Member rewards and offers;
the impact of any future restructuring charges or other
contingencies, including, but not limited to, litigation-related
expenses, impairments, the imposition of fines or civil money
penalties, an increase in Card Member reimbursements and changes in
reserves; credit performance remaining consistent with current
expectations; continued growth of Card Member loans; the ability to
continue to realize benefits from restructuring actions and
operating leverage at levels consistent with current expectations;
the amount the Company spends on growth initiatives and the
Company’s ability to drive growth from such investments; changes in
interest rates beyond current expectations; the impact of
regulation and litigation, which could affect the profitability of
the Company’s business activities, limit the Company’s ability to
pursue business opportunities, require changes to business
practices or alter the Company’s relationships with partners,
merchants and Card Members; the Company’s tax rate remaining in
line with current expectations, which could be impacted by, among
other things, the Company’s geographic mix of income being weighted
more to higher tax jurisdictions than expected, changes in tax laws
and regulation (including final and temporary Treasury regulations
under Section 385 of the U.S. Internal Revenue Code) and
unfavorable tax audits and other unanticipated tax items; the
impact of accounting changes and reclassifications; and the
Company’s ability to continue executing its share repurchase
program;
- the actual amount to be spent on
marketing and promotion, including on marketing support for, and
enhancements to, the Company’s Platinum Card franchise, “shop
small” offers, acquisition efforts and brand advertising, as well
as the timing of any such spending, which will be based in part on
management’s assessment of competitive opportunities; overall
business performance; prior commitments, contractual obligations
with business partners and other fixed costs relative to revenue
levels; management’s ability to identify attractive investment
opportunities and make such investments, which could be impacted by
business, regulatory or legal complexities; and the Company’s
ability to realize efficiencies, optimize investment spending and
control expenses to fund such spending;
- the Company’s rewards including cash
back growing at a different rate than current expectations, which
will depend in part on the behavior of the Company’s Card Members
as it relates to their spending patterns, spending volumes and
redemption behaviors, as well as the degree of interest of Card
Members in the value proposition offered by the Company; the
Company’s ability to enhance card products and services to make
them attractive to Card Members; and the amount the Company spends
on the promotion of enhanced card products and rewards categories
and the success of such promotion.
- the ability of the Company to reduce
its overall cost base by $1 billion on a run rate basis by the end
of 2017, which will depend in part on the timing and financial
impact of reengineering plans, which could be impacted by factors
such as the Company’s inability to mitigate the operational and
other risks posed by potential staff reductions, the Company’s
inability to develop and implement technology resources to realize
cost savings and underestimating hiring needs and other employee
needs not currently anticipated; the ability of the Company to
reduce annual operating expenses, which could be impacted by, among
other things, the factors identified below; and the ability of the
Company to optimize and lower marketing and promotion expenses,
which could be impacted by higher advertising and Card Member
acquisition costs, competitive pressures that may require
additional expenditures or limit the Company’s ability to reduce
costs, an inability to shift acquisition to digital channels, the
availability of opportunities to invest at a higher level due to
favorable business results and changes in macroeconomic
conditions;
- the ability to reduce annual operating
expenses, which could be impacted by increases in significant
categories of operating expenses, such as consulting or
professional fees, including as a result of increased litigation,
compliance or regulatory-related costs, technology costs or fraud
costs; the ability of the Company to develop, implement and achieve
substantial benefits from reengineering plans; higher than expected
employee levels; the impact of changes in foreign currency exchange
rates on costs; the payment of civil money penalties, disgorgement,
restitution, non-income tax assessments and litigation-related
settlements; impairments of goodwill or other assets; management’s
decision to increase or decrease spending in such areas as
technology, business and product development and sales forces
depending on overall business performance; greater than expected
inflation or merit increases; the Company’s ability to balance
expense control and investments in the business; the impact of
accounting changes and reclassifications; and the level of M&A
activity and related expenses;
- the Company’s lending write-off rates
changing differently than current expectations and provision
expense being higher than current expectations, which will depend
in part on changes in the level of loan balances, delinquency rates
of Card Members, mix of loan balances, loans related to new Card
Members performing as expected, unemployment rates, the volume of
bankruptcies and recoveries of previously written-off loans;
- the Company’s ability to execute
against its lending strategy and grow loans, which may be affected
by increasing competition, brand perceptions and reputation, the
Company’s ability to manage risk in a growing Card Member loan
portfolio, and the behavior of Card Members and their actual
spending and borrowing patterns, which in turn may be driven by the
Company’s ability to issue new and enhanced card products, offer
attractive non-card lending products, capture a greater share of
existing Card Members’ spending and borrowings, reduce Card Member
attrition and attract new customers;
- the possibility that the Company will
not fully execute on its plans for OptBlue to significantly
increase merchant coverage, which will depend in part on the
success of OptBlue merchant acquirers in signing merchants to
accept American Express, which could be impacted by the pricing set
by the merchant acquirers, the value proposition offered to small
merchants and the efforts of OptBlue merchant acquirers to sign
merchants for American Express acceptance, as well as the
willingness of Card Members to use American Express cards at small
merchants and of those merchants to accept American Express
cards;
- the ability of the Company to capture
small business and middle market spending, which will depend in
part on the willingness and ability of companies to use credit and
charge cards for procurement and other business expenditures,
perceived or actual difficulties and costs related to setting up
card-based B2B payment platforms, the ability of the Company to
offer attractive value propositions and card products to potential
customers, the Company’s ability to enhance and expand its payment
solutions, and the effectiveness of the Company’s marketing and
promotion of its corporate payment solutions and small business
card products to potential customers;
- the ability of the Company to grow
internationally, which could be impacted by regulation and business
practices, such as those favoring local competitors or prohibiting
or limiting foreign ownership of certain businesses, the Company’s
ability to partner with additional GNS issuers and the success of
GNS partners in acquiring Card Members and/or merchants, political
or economic instability, which could affect lending and other
commercial activities, the Company’s ability to tailor products and
services to make them attractive to local customers, and
competitors with more scale and experience and more established
relationships with relevant customers, regulators and industry
participants;
- the Company’s ability to attract and
retain Card Members as well as capture the spending and borrowings
of our customers, including former Costco cobrand Card Members,
consistent with current expectations, which will be impacted in
part by competition, brand perceptions (including perceptions
related to merchant coverage) and reputation and the ability of the
Company to develop and market value propositions that appeal to
Card Members and new customers and offer attractive services and
rewards programs, which will depend in part on ongoing investment
in marketing and promotion expenses, new product innovation and
development, acquisition efforts and enrollment processes,
including through digital channels, and infrastructure to support
new products, services and benefits;
- the erosion of the average discount
rate by a greater amount than anticipated, including as a result of
further expansion of the OptBlue program, changes in the mix of
spending by location and industry, merchant negotiations (including
merchant incentives, concessions and volume-related pricing
discounts), competition, pricing regulation (including regulation
of competitors’ interchange rates in the EU and elsewhere) and
other factors;
- changes affecting the ability or desire
of the Company to return capital to shareholders through dividends
and share repurchases, which will depend on factors such as
approval of the Company’s capital plans by its primary regulators,
the amount the Company spends on acquisitions and the Company’s
results of operations and capital needs in any given period;
and
- factors beyond the Company’s control
such as changes in global economic and business conditions,
consumer and business spending, the availability and cost of
capital, unemployment rates, geopolitical conditions (including
potential impacts resulting from the proposed exit of the U.K. from
the European Union), foreign currency rates and interest rates, as
well as fire, power loss, disruptions in telecommunications, severe
weather conditions, natural disasters, health pandemics, terrorism,
cyber attacks or fraud, all of which could significantly affect
spending on American Express cards, delinquency rates, loan
balances and results of operation or disrupt the Company’s global
network systems and ability to process transactions.
A further description of these uncertainties and other risks can
be found in the Company’s Annual Report on Form 10-K for the year
ended December 31, 2015, the Company’s Quarterly Reports on Form
10-Q for the quarters ended March 31 and June 30, 2016 and the
Company’s other reports filed with the Securities and Exchange
Commission.
_______________________
1 Represents net income less (i) earnings allocated to
participating share awards of $9 million and $10 million for the
three months ended September 30, 2016 and 2015, respectively, and
$37 million and $32 million for the nine months ended September 30,
2016 and 2015, respectively, and (ii) dividends on preferred shares
of $21 million and $22 million for the three months ended September
30, 2016 and 2015, respectively, and $61 million and $42 million
for the nine months ended September 30, 2016 and 2015,
respectively.
2 Adjusted diluted earnings per share (EPS), a non-GAAP measure,
excludes a $44MM pretax restructuring charge ($28MM after-tax).
Management believes adjusted EPS is useful in evaluating the
ongoing operating performance of the company and the company’s
performance against its EPS outlook provided in the company’s Q4’15
earnings release on January 21, 2016, at which point restructuring
charges and other contingencies were not estimable and thus not
included in the outlook. See Appendix I for a reconciliation to EPS
on a GAAP basis.
3 Adjusted revenues net of interest expense, a non-GAAP measure,
excludes from prior-year results estimated revenues from Costco in
the U.S., Costco U.S. cobrand Card Members and other merchants for
out-of-store spend on the Costco cobrand card. Management believes
adjusted revenues net of interest expense is useful in evaluating
the ongoing operating performance of the company following the end
of the Costco U.S. relationship. See Appendix I for a
reconciliation to total revenues net of interest expense on a GAAP
basis.
4 Adjusted provisions for losses excludes from prior-year
results Card Member balances related to cobrand partnerships with
Costco in the U.S. and JetBlue, which were reclassified as held for
sale effective December 2015. See Appendix I for reconciliations to
consolidated provision for losses, on a GAAP basis. Management
believes the presentation of adjusted provision for losses is
useful in evaluating the ongoing performance of the company’s loan
portfolio.
5 Operating expenses represent salaries and employee benefits,
professional services, occupancy and equipment, and other, net.
6 The company’s adjusted EPS outlook, a non-GAAP measure,
excludes $360MM of pretax restructuring charges ($234MM after-tax)
recognized in the first three quarters of 2016 as well as any
restructuring charges or other contingencies that may be incurred
during the remainder of 2016, which management is not able to
estimate. Management believes the presentation of an adjusted EPS
outlook is useful as it is consistent with the outlook provided in
the company’s Q4’15 earnings release on January 21, 2016, at which
point restructuring charges and other contingencies were not
estimable and thus not included in the outlook. See Appendix I for
a reconciliation to EPS on a GAAP basis.
7 As reported in this release, FX-adjusted information assumes a
constant exchange rate between the periods being compared for
purposes of currency translations into U.S. dollars (i.e., assumes
the foreign exchange rates used to determine results for the three
months ended September 30, 2016 apply to the period(s) against
which such results are being compared). FX-adjusted revenues and
expenses constitute non-GAAP measures. Management believes the
presentation of information on an FX-adjusted basis is helpful to
investors by making it easier to compare the company’s performance
in one period to that of another period without the variability
caused by fluctuations in currency exchange rates.
American Express Company
(Preliminary)
Appendix I Reconciliations of Adjustments
(Millions, except percentages, per share information and where
indicated)
Quarters Ended September 30,
September 30,
YOY %
2016 2015
Change
Adjusted Total
Revenues Net of Interest Expense (billions)
Total Revenues Net of Interest Expense $ 7.8
$ 8.2 (5 ) Costco Related Revenues
(A) - ~ 0.8 Adjusted
Total Revenues Net of Interest Expense $ 7.8
$ 7.4 5
Adjusted Total
Provisions for Losses
Total Provisions for Losses $ 504 $
529 (5 ) Cobrand reclass to Other, net
Expense (B) - (54 )
Adjusted Total Revenues Net of Interest Expense $
504 $ 475 6
Earnings per
Share (EPS)
Q3'16 EPS $ 1.20 $ 1.24
(3 ) Q3'16 restructuring charge per share
(pre-tax) 0.05 - Tax impact of Q3'16
restructuring charge per share (0.01 )
- After-tax impact of Q3'16 restructuring
charge per share $ 0.04 $ -
Q3'16 Adjusted EPS - normalized for Restructuring
charges $ 1.24 $ 1.24 -
2016 Earnings per
Share (EPS) Outlook
FY'16 EPS Range EPS Outlook excluding
restructuring charges and other contingencies $
5.90 $ 6.00 Q1'16 restructuring charge per
share (pre-tax) 0.08 0.08 Tax impact of Q1'16
restructuring charge per share (0.03 )
(0.03 ) After-tax impact of Q1'16
restructuring charge per share $ 0.05
$ 0.05 Q2'16 restructuring charge per share
(pre-tax) 0.25 0.25 Tax impact of Q2'16
restructuring charge per share (0.09 )
(0.09 ) After-tax impact of Q2'16
restructuring charge per share $ 0.16
$ 0.16 Q3'16 restructuring charge per share
(pre-tax) 0.05 0.05 Tax impact of Q3'16
restructuring charge per share (0.01 )
(0.01 ) After-tax impact of Q3'16
restructuring charge per share $ 0.04
$ 0.04 US GAAP EPS Outlook - Including YTD
Restructuring (C) $ 5.65 $
5.75
(A)
Represents estimated Discount revenue from
Costco in the U.S. for spend on all American Express cards and from
other merchants for spend on the Costco cobrand card as well as
Other fees and commissions and Interest income from Costco cobrand
Card Members.
(B)
Beginning December 1, 2015 through to the
sale completion dates, Total provision for Losses did not reflect
the held for sale portfolios, as credit costs were reported in
Other, net expense through a valuation allowance adjustment.
(C)
Reflects restructuring charges recognized
in the first three quarters of 2016. Management is not able to
estimate restructuring charges or other contingencies for the
remainder of 2016.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20161019006327/en/
Media:Marina H. Norville,
+1-212-640-2832marina.h.norville@aexp.comorInvestors/Analysts:Ken
Paukowits, +1-212-640-6348ken.f.paukowits@aexp.comToby Willard,
+1-212-640-5574sherwood.s.willardjr@aexp.com
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