Earnings Preview: What To Expect From American Express’s Q3 Earnings

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AXP: American Express Company logo
AXP
American Express Company

American Express (NYSE: AXP) is set to report earnings for the third quarter of fiscal 2016 on Wednesday, October 19th. In the previous quarter, the company reported an increase in earnings per share (EPS) of 48.6% year over year on a net income increase of 35%. This was largely the result of a 15% decline in operating expenses and a $ 1.1 billion windfall in pre-tax gains related to the sale of American Express’ co-brand portfolio with Costco.

The U.S. based payments and banking company has been experiencing a tough environment in 2016 as a result of tougher regulations, greater competition from other credit card companies, foreign exchange headwinds and the loss of several co-branding partners. The most significant of these former partners were Jet Airways, Fidelity Investments, Starwood Hotels and above all Costco, which contributed close to 8% of American Express’ purchase volume in 2015.

To compensate, the company has been trying to bring new partners into its payment network. The recent deal with Sam’s Club, a membership-only retail warehouse club owned by Walmart, will bring affluent customers with a higher average spend per card into the company’s network and help boost its earnings. The company has stated in the past that it wants its cards to be as universally accepted as Visa and Master Card by 2019. Partnerships with rapidly growing private companies like Uber and Airbnb will certainly help the company advance towards its goals on that front.

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Additionally, the company is looking to bring down operating expenses by $1 billion each year by 2017. It has also been returning cash to shareholders aggressively. American Express bought back 7% of its shares in the previous quarter and more than half of its EPS growth over the last five years has been a result of reduction in share count. In this quarter, we expect the same trends from the previous quarter to continue to affect the company’s earnings. Weak foreign currencies compared to the U.S. dollar could weigh on reported revenue growth, but gains from the reduction in operating expenses and the removal of losses related to the decline in revenue from Costco related business could help offset some of that impact. Continued share buybacks could help prop up the EPS somewhat.

axp q3 earnings

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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
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