American Express Co. AXP or AmEx reported first-quarter 2015 operating earnings per share (EPS) of $1.48, comfortably beating the Zacks Consensus Estimate by about 8%. The company kept its earnings streak alive with the fifth consecutive earnings beat. EPS also topped the year-ago quarter figure of $1.33 by 11%. With this result, the company’s average four-quarter beat stands at 4.2%.
Net income from operations climbed 6% year over year to $1.53 billion, primarily driven by a higher consumer spending on AmEx cards and a lower share count.
AmEx’s total billed business, or global card spending, rose 3% year over year to $245.6 billion. The rise came on cards used in the U.S. that grew 6% to $169.2 billion, although international business dipped 3% to $76.4 billion primarily due to a stronger dollar and loss of co-branded tie-ups.
Quarter in Details
AmEx posted total revenue, net of interest expenses, of $7.95 billion, down 3% from the prior-year quarter. Excluding revenues from the divested global travel operations in the year-ago quarter, total revenue rose 5%. The upside in revenues was attributable to modest growth in net interest income and the loan portfolio, and decline in interest expenses, partly offset by lower non-interest income. Increased yields, strong credit indicators and higher lending balances drove growth as well.
However, provisions for losses sank 13% to $420 million, primarily owing to larger reserve releases during the reported quarter.
AmEx’s total expenses decreased 5% year over year to $5.2 billion in the reported quarter, primarily reflecting lower operating expenses, partly offset by higher marketing expenses, card member reward and services.
Tax rate was 34% against 35% in the year-ago quarter. Meanwhile, pre-tax operating margin improved to 30.3% during the reported quarter from 27% in the year-ago quarter.
Segment Results
U.S. Card Services reported net income of $934 million, up 7% from $876 million in the prior-year quarter. Total revenue, net of interest expenses, increased 6% to $4.53 billion, primarily due to higher net interest income and card member spending.
International Card Services’ net income amounted to $134 million, sinking 16% from the year-ago quarter. Even total revenue, net of interest expenses, came in at $1.24 billion, down 8% year over year, primarily due to strengthening of U.S. dollar.
Global Commercial Services’ net income dipped 2% to $180 million from $184 million. Moreover, total revenue, net of interest expenses, plunged 31% year over year to $827 million, primarily on strong U.S. dollar.
Global Network & Merchant Services reported net income of $444 million, at par with the prior-year quarter. However, total revenue, net of interest expenses, dipped 2% year over year to $1.34 billion, driven by adverse foreign exchange rates.
Corporate & Other reported net loss of $167 million, narrower than the net loss of $230 million incurred a year ago. Total revenue, net of interest expenses, rose to $13 million.
Financial Update
As of Mar 31, 2015, AmEx’s total assets were $155 billion (down from $159 billion at 2014-end), while long-term debt totaled $55 billion (down from $58 billion at 2014-end level) against cash of $24 billion (up from $22 billion at 2014-end). Meanwhile, shareholder equity amounted to $22 billion at Mar 2015-end, up from $21 billion at 2014-end.
As of Mar 31, 2015, AmEx’s return on equity (ROE) was 29%, up from 28.3% in the year-ago period. Return on average common equity (ROCE) was 29/3%, up from 28.1% in Mar 2014. Further, book value increased 14% year over year to $21.49 per share.
Capital Deployment Update
During the reported quarter, AmEx repurchased 9.1 million shares, at an average price of $81.62, for a total of about $742.7 million, underperforming its target of buying back $1 billion worth of shares in the last quarter.
As expected, the board of AmEx has hiked its regular quarterly dividend by 12% to 29 cents, now annually shelling out $1.16 per share. This payout marks an increasefrom 26 centsin May 2014, marking the fourth dividend hike by the company since Nov 2007.
On Mar 23, 2015, the company declared a quarterly dividend of 26 cents a share, payable on May 8, to shareholders of record as on Apr 2.
Approximately 65% of the capital generated was distributed to shareholders through dividend payouts and share repurchases in first-quarter 2015.
AmEx aims to buy back shares worth about $6.6 billion of repurchases through second-quarter 2015.
Guidance
Management continues to expect flat-to-lower earnings in 2015, owing to the restructuring investments for the loss of major Costco Wholesale Corp. COST account in Mar 2016. Operating expenses will likely rise by about 3%.
Zacks Rank
AmEx currently carries a Zacks Rank #3 (Hold).
Peer Take
Among AmEx’s peers, Discover Financial Services DFS is slated to report its first-quarter 2015 results after the closing bell on Apr 21. Another arch-rival, MasterCard Inc. MA is slated to release its first-quarter 2015 earnings results before the opening bell on Apr 29.
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