Revenue Growth
Reflects Higher Card Member Spending, Loans and Card
Fees
Company Affirms 2019
Outlook
American Express Company (NYSE: AXP) today reported
first-quarter net income of $1,550 million or $1.80 per share,
compared with net income of $1,634 million or $1.86 per share a
year ago.
(Millions, except percentages and per
share amounts)
Quarters EndedMarch 31,
PercentageInc/(Dec)
2019 2018
Total Revenues Net of Interest Expense $ 10,364 $
9,718 7 Net Income $ 1,550 $ 1,634 (5)
Diluted Earnings Per Common Share2
$ 1.80 $ 1.86 (3)
Adjusted Diluted Earnings Per Common
Share1
$ 2.01 $ 1.86 8 Average Diluted Common Shares
Outstanding 843 861 (2)
First-quarter earnings per share of $1.80 included an addition
to legal reserves of $0.21 per share related to a merchant
litigation that has now been resolved. Excluding that
litigation-related charge, adjusted earnings per share for the
quarter was $2.01.1
First-quarter consolidated total revenues net of interest
expense were $10.4 billion, up 7 percent from $9.7 billion a year
ago. Excluding the impact of foreign exchange rates, adjusted
revenues net of interest expense grew 9 percent.3 The increases
were broad-based and reflected higher Card Member spending, loan
volumes and fee income.
Consolidated provisions for losses were $809 million, up 4
percent from $775 million a year ago. The increase reflected
continued growth in the loan and receivable portfolios and higher
net lending write-offs, partially offset by a smaller reserve build
compared to a year ago.
Consolidated expenses were $7.6 billion, up 11 percent from $6.9
billion a year ago. The increase reflected, in part, higher
customer engagement costs. Operating expenses were up 10 percent
from a year ago,4 primarily driven by the litigation-related
charge.
The consolidated effective tax rate was 20.8 percent, down from
21.5 percent a year ago.
“With FX-adjusted revenues up 9 percent we are off to a solid
start in 2019,” said Stephen J. Squeri, chairman and chief
executive officer. “This growth was broad based and well-balanced
across spend, lend and fee revenues, reflecting the benefits of our
integrated business model.
“We continued to expand our merchant network and added 3.1
million new proprietary cards in the quarter driven primarily by
our digital acquisition initiatives. Billings growth remained solid
across customer segments and geographies, with strong performance
internationally, especially among consumers, small and mid-sized
business customers. Loan growth continued to be strong, and credit
quality remained at industry-leading levels.
“During the quarter, we signed an extension of our partnership
with Delta Air Lines that will take us to 2030. Delta is our
largest cobrand partnership, and it’s one of the most valuable
portfolios in the industry. Spending on our Delta cobrand products
has grown by double digits annually for the past several years, and
together we’ve acquired more than 1 million new accounts in each of
the past two years. The partnership contributes significant revenue
and earnings to both companies and, from a customer and shareholder
perspective, we feel great about the opportunity it represents.
“We are affirming our revenue and EPS guidance for the full
year.5
“Looking ahead, we continue to see a number of attractive growth
opportunities across our businesses, and we’re going to invest to
take advantage of those opportunities in order to drive revenue
growth over the moderate to longer term.”
Global Consumer Services Group reported first-quarter net
income of $821 million, down 1 percent from $826 million a year
ago.
Total revenues net of interest expense were $5.6 billion, up 9
percent from $5.1 billion a year ago. The rise primarily reflected
higher loan volumes, Card Member spending and fee income.
Provisions for losses totaled $552 million, up 4 percent from
$530 million a year ago. The rise primarily reflected continued
growth in the loan portfolio and higher net lending write-offs,
partially offset by a smaller reserve build compared to a year
ago.
Total expenses were $4.0 billion, up 12 percent from $3.5
billion a year ago. The increase was primarily driven by higher
customer engagement costs.
The effective tax rate was 21 percent, unchanged from a year
ago.
Global Commercial Services reported first-quarter net
income of $586 million, up 7 percent from $546 million a year
ago.
Total revenues net of interest expense were $3.2 billion, up 6
percent from $3.0 billion a year ago. The increase primarily
reflected higher Card Member spending.
Provisions for losses totaled $254 million, up 6 percent from
$240 million a year ago.
Total expenses were $2.2 billion, up 7 percent from $2.1 billion
a year ago. The rise primarily reflected higher marketing and
business development costs and increased operating expenses.
The effective tax rate was 21 percent, down from 23 percent a
year ago.
Global Merchant and Network Services reported
first-quarter net income of $631 million, up 22 percent from $516
million a year ago.
Total revenues net of interest expense were $1.6 billion,
unchanged from a year ago.
Total expenses were $787 million, down 11 percent from $887
million a year ago, primarily due to a charge related to the sale
of the company’s prepaid operations in the prior year.
The effective tax rate was 25 percent, down from 27 percent a
year ago.
Corporate and Other reported first-quarter net loss of
$489 million, compared with a net loss of $254 million a year ago,
primarily reflecting the impact of the litigation-related charge
mentioned earlier.
About American Express
American Express is a globally integrated payments 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, instagram.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, travel
services, gift cards, prepaid cards, merchant services, Accertify,
InAuth, corporate card, business travel, and corporate
responsibility.
This earnings release should be read in conjunction with the
company’s statistical tables for the first-quarter 2019, 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 8:30 a.m. (ET) today
to discuss first-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 American Express Company’s current
expectations regarding business and financial performance,
including management’s outlook for 2019, among other matters,
contain words such as “expect,” “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
2019 earnings per common share outlook, which will depend in part
on revenue growth, credit performance and the effective tax rate
remaining consistent with current expectations, the company’s
ability to control operating expense growth and generate operating
leverage, and the company’s ability to continue executing its share
repurchase program; any of which could be impacted by, among other
things, the factors identified in the subsequent paragraphs as well
as the following: issues impacting brand perceptions and the
company’s reputation; the impact of any future contingencies,
including, but not limited to, restructurings, impairments, changes
in reserves, legal costs, the imposition of fines or civil money
penalties and increases in Card Member reimbursements; the amount
and efficacy of investments in customer engagement; changes in
interest rates beyond current expectations (including the impact of
hedge ineffectiveness and deposit rate increases); a greater impact
from new or renegotiated cobrand agreements than expected, which
could be affected by spending volumes and customer acquisition; and
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 ability of the company to achieve
its 2019 revenue growth outlook, 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 and grow
spending and revolve balances, growth in Card Member loans and the
yield on Card Member loans not remaining consistent with current
expectations, the average discount rate changing by a greater
amount than expected, the strengthening of the U.S. dollar beyond
expectations, the willingness of Card Members to pay higher card
fees, lower spending on new cards acquired than estimated, and the
company’s inability to address competitive pressures and implement
its strategies and business initiatives, including within the
premium consumer segment, commercial payments, the global network
and digital environment;
- changes in the substantial and
increasing worldwide competition in the payments industry,
including competitive pressure that may impact the prices charged
to merchants that accept American Express cards, competition for
new and existing cobrand relationships, competition from new and
non-traditional competitors and the success of marketing, promotion
and rewards programs;
- the company’s delinquency and write-off
rates and growth of provisions for losses being higher or lower
than current expectations, which will depend in part on changes in
the level of loan and receivable balances and delinquencies
generally as well as in macroeconomic factors, the mix of balances,
newer vintages and balance transfers, loans and receivables related
to new Card Members and other borrowers performing as expected,
credit performance of new and enhanced lending products,
unemployment rates, the volume of bankruptcies, collections
capabilities and recoveries of previously written-off loans and
receivables;
- the company’s ability to continue to
grow loans, which may be affected by increasing competition, brand
perceptions and reputation, the company’s ability to manage risk,
the behavior of Card Members and their actual spending and
borrowing patterns, and 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 company’s rewards expense and cost
of Card Member services growing inconsistently from expectations,
which will depend in part on Card Member behavior as it relates to
their spending patterns, including the level of spend in bonus
categories, and their redemption of rewards and offers, as well as
the degree of interest of Card Members in the value proposition
offered by the company; increasing competition, which could result
in additional benefits and services and greater rewards offerings;
the company’s ability to enhance card products and services to make
them attractive to Card Members; and the pace and cost of the
expansion of the company’s global lounge collection;
- the actual amount to be spent on
marketing and business development, 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, corporate and GNS billings and changes in
macroeconomic conditions; costs related to advertising and Card
Member acquisition; the company’s ability to continue to shift Card
Member acquisition to digital channels; contractual obligations
with business partners and other fixed costs and commitments,
including as a result of partnership renegotiations; 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 ability to control
operating expense growth, which could be impacted by increases in
costs, such as cyber, fraud or compliance expenses or consulting,
legal and other professional fees, including as a result of
increased litigation or internal and regulatory reviews; higher
than expected employee levels; an inability to innovate efficient
channels of customer interactions, such as chat supported by
artificial intelligence, or customer acquisition; 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; greater-than-expected inflation; and
the level of M&A activity and related expenses;
- the company’s ability to realize the
benefits from its strategic partnerships, including Delta Air
Lines, which is dependent in part on the ability of the companies
to collaborate, 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 the competitive
environment, brand perceptions, ongoing investments, new product
innovation and development, Card Member acquisition efforts and
enrollment processes, and infrastructure to support new products,
services and benefits;
- the company’s ability to grow Personal
Savings deposits consistent with expectations, including as a
result of market demand, changes in benchmark interest rates or
regulatory restrictions on the company’s ability to obtain deposit
funding or offer competitive interest rates, which could affect the
company’s net interest yield and ability to fund its
businesses;
- a failure in or breach of the company’s
operational or security systems, processes or infrastructure, or
those of third parties, including as a result of cyberattacks,
which could compromise the confidentiality, integrity, privacy
and/or security of data, disrupt its operations, reduce the use and
acceptance of American Express cards and lead to regulatory
scrutiny, litigation, remediation and response costs, and
reputational harm;
- legal and regulatory developments,
which could require the company to make fundamental changes to many
of its business practices, including its ability to continue
certain cobrand and agent relationships in their current form in
the EU; exert further pressure on the average discount rate and GNS
volumes; result in increased costs related to regulatory oversight,
litigation-related settlements, judgments or expenses, restitution
to Card Members or the imposition of fines or civil money
penalties; materially affect capital or liquidity requirements,
results of operations, or ability to pay dividends or repurchase
stock; or result in harm to the American Express brand; and
- factors beyond the company’s control
such as changes in global economic and business conditions,
consumer and business spending generally, the availability and cost
of capital, unemployment rates, geopolitical conditions, Brexit,
trade policies, foreign currency rates and interest rates, as well
as fire, power loss, disruptions in telecommunications, severe
weather conditions, natural disasters, health pandemics or
terrorism, any of which could significantly affect demand for and
spending on American Express cards, delinquency rates, loan and
receivable balances and other aspects of the company and its
results of operations 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 American Express Company’s Annual Report on Form 10-K
for the year ended December 31, 2018, the company’s Quarterly
Report on Form 10-Q for the quarter ended March 31, 2019 and the
company’s other reports filed with the Securities and Exchange
Commission.
American Express Company Appendix I
Reconciliations of Adjustments
Q1'19 Q1’18
PercentageInc/(Dec)
Diluted earnings per common share $1.80 $1.86
(3)
Litigation-related charge (pre-tax) 0.27 —
Tax impact of litigation-related charge (0.06)
— Net Impact of Q1’19 litigation-related charge
0.21 — Adjusted diluted earnings per common
share $2.01 $1.86 8
2019 EPS Range GAAP EPS Outlook $7.64
$8.14 Litigation-related charge (pre-tax) 0.27
0.27 Tax impact of litigation-related charge
(0.06) (0.06) Net Impact of Q1’19
litigation-related charge 0.21 0.21 Adjusted
EPS Outlook $7.85 $8.35
_______________________________
Notes:
1 Adjusted diluted earnings per common
share (EPS), a non-GAAP measure, excludes the impact of a
litigation-related charge in Q1 ‘19. Management believes adjusted
EPS is useful in evaluating the ongoing operating performance of
the company. See Appendix I for a reconciliation to EPS on a GAAP
basis.
2 Earnings per common share – diluted was
reduced by the impact of (i) earnings allocated to participating
share awards and other items of $11 million and $13 million for the
three months ended March 31, 2019 and 2018, respectively, and (ii)
dividends on preferred shares of $21 million for both the three
months ended March 31, 2019 and 2018.
3 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 (e.g., assumes
the foreign exchange rates used to determine results for the three
months ended March 31, 2019 apply to the period(s) against which
such results are being compared). 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. 4 Operating
expenses represent salaries and employee benefits, professional
services, occupancy and equipment, and other expenses. 5 The
company’s 2019 revenue growth guidance remains 8-10 percent. The
company’s 2019 EPS guidance on a GAAP basis, which includes the
impact of a litigation-related charge in Q1’19, is between $7.64
and $8.14. The 2019 adjusted EPS guidance, a non-GAAP measure,
remains between $7.85 and $8.35. See Appendix I for a
reconciliation. Management believes the presentation of adjusted
EPS guidance is useful in evaluating the ongoing operating
performance of the company.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190418005333/en/
Media Contact:Marina H. Norville,
marina.h.norville@aexp.com, +1.212.640.2832
Investors/Analysts Contacts:Edmund Reese,
edmund.reese@aexp.com, +1.212.640.5574Melanie L. Michel,
melanie.l.michel@aexp.com, +1.212.640.5574
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