American Express Co. AXP or AmEx reported third-quarter 2015 operating earnings per share (EPS) of $1.24, which missed the Zacks Consensus Estimate of $1.31. EPS also declined 11% year over year.
Net income dropped 14% to $1.27 billion from $1.48 billion in the year-ago quarter.
Results for the quarter were significantly affected led by AmEx’s continued high expenditures on growth initiatives. Previous changes to certain renewed co-brand partnerships and the negative impact of a strong U.S. dollar also dented earnings.
Revenues of $8.19 billion missed the Zacks Consensus Estimate of $8.38 billion, and declined 1.3% from the year-ago quarter.
Consolidated provisions for losses increased 8% year over year to $529 million, reflecting a rise in reserves.
AmEx's total billed business, or global card spending was $258.9 billion compared with $258.1 billion in the year-ago quarter. The slight rise came from cards that were used in the U.S. which grew 4.2% to $180.3 billion, although international business fell 7.6% to $78.6 billion primarily due to a stronger dollar.
Total expenses were $5.7 billion, 3% higher year over year, as AmEx spent more on growth initiatives, primarily for marketing and technology development. The increase was also driven by higher rewards and Card Member services costs due to increased Card Member spending volumes and the impact of certain previously renewed co-brand partnerships.
The effective tax rate was 35% compared with 34% in the year-ago quarter.
Segment Results
U.S. Card Services reported net income of $794 million, down 11% year over year. Total revenue, net of interest expenses, increased 5% to $4.7 billion, primarily due to higher net interest income and increased Card Member spending. Provisions for losses totaled $390 million, 23% higher year over year led by an addition in reserves. Total expenses increased 11% to $3.1 billion from $2.8 billion a year ago, due to higher spending on growth initiatives, primarily within marketing and promotion and technology development.
International Card Services’ net income amounted to $89 million, down 37% from the year-ago quarter. Total revenue, net of interest expenses, came in at $1.2 billion, down 11% year over year.
Global Commercial Services’ net income plunged 26% year over year to $151 million. Moreover, total revenue, net of interest expenses, fell 9% year over year to $817 million.
Global Network & Merchant Services reported net income of $462 million, up 8% year over year. However, total revenue, net of interest expenses, declined 6% year over year to $1.4 billion.
Financial Update
As of Sep 30, 2015, total assets of AmEx were $154 billion (down from $157 billion in the last quarter), while long-term debt totaled $49 billion (down from $53 billion in the last quarter) against cash of $20 billion (down from $21 billion in the previous quarter). Meanwhile, shareholder equity amounted to $21 billion at Sep 2015 end, down from $22 billion in the previous quarter.
As of Sep 30, 2015, return on average common equity of AmEx was 26.8%, down from 28.8% in Sep 30, 2014. Further, book value increased to $20.06 per share from $19.54 in the year-ago quarter.
Guidance Update
AmEx now expects full-year 2015 EPS between $5.20 and $5.35.
Zacks Rank
AmEx currently carries a Zacks Rank #3 (Hold). Another company in the same sector, Discover Financial Services DFS reported third-quarter 2015 earnings per share of $1.38, beating the Zacks Consensus Estimate of $1.34. Some other companies like Visa Inc. V and Capital One Financial Corporation COF are expected to beat estimates with their positive Earnings ESP and favorable Zacks Rank in their upcoming releases.
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