Earnings Review: American Express’ Cost Cutting Boosts Bottom Line But Expenses Expected To Rise Going Forward

-23.07%
Downside
228
Market
175
Trefis
AXP: American Express Company logo
AXP
American Express Company

American Express (NYSE: AXP) announced its earnings for the second quarter of fiscal year 2016 on Wednesday, July 20th. The company reported earnings per share of $ 2.11, a 48.6% increase over last year’s $ 1.42. The rise was attributable mostly to various one time items. These include a $1.1 billion pre-tax gain for the sale of the co-brand portfolio with Costco, the losses resulting from the slowdown in Costco-related payment volumes, restructuring charges related to cost reduction efforts and increased spending on investments related to future growth opportunities.

American Express is working on compensating for the loss of partnerships with Costco, Jet Blue Airways, Fidelity and Starwood Hotels. To this end, the company is working on trying to expand the network of merchants who are willing to accept American Express credit cards, partners such as Sam’s Club who offer American Express cards to their members and cost reduction efforts. Net Operating expenses for the quarter declined by almost 15% year over year as a result of these efforts. Since this is the largest expense item for the company, this reduction led to a 35% increase in net income. Compared to last year, American Express’ share count has declined by 7%. This also contributed to the increase in reported EPS.

Going forward, the company’s focus is on trying to sign new partners to the American Express network and trying to expand the acceptance levels of AmEx issued credit cards to those of  Visa and Master Card credit cards. The company hopes to achieve this by 2019, but it is likely to put pressure on the transaction fees that it can command and the Annualized Percentage Rates it can offer on credit card loans. These efforts should drive the top line in the long term, but in the short term expenses are expected to continue to rise.

axp e3

Relevant Articles
  1. Up 25% YTD, What To Expect From American Express Stock?
  2. American Express Stock To Beat The Expectations In Q3
  3. What To Expect From American Express Stock?
  4. American Express Stock To Top The Consensus In Q2
  5. American Express Stock Is Attractive At The Current Levels
  6. American Express Stock To Post Mixed Results In Q4?

Have more questions about American Express? See the links below:

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for American Express
Interactive Institutional Research (Powered by Trefis):

Global Large CapU.S. Mid & Small CapEuropean Large & Mid Cap |More Trefis Research