Earnings Review: American Express’ Transition Period Is Well Underway

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AXP: American Express Company logo
AXP
American Express Company

American Express (NYSE: AXP) announced its earnings for the third quarter of fiscal year 2016 on Wednesday, October 19th. The company reported  earnings per share of $ 1.20, a 2.7% decline compared to the third quarter of fiscal year 2015. The U.S. based payments and banking company saw its net income decline by close to 12% on a revenue decline of 4.5%, with a 7.4% share count reduction resulting in the impact on EPS coming down to just 2.7%. American Express saw all its revenue streams decline in the quarter except for Card Membership fees. The biggest decline was shown by net interest income, which declined by 7.4% as income from credit card loans declined to $1.69 billion compared to $1.85 billion in the previous year.

The company has had a rough year with the loss of various co-branding partners like Jet Blue Airways, Starwood Hotels, Costco and Fidelity. Additionally, the company is facing pressure to reduce its transaction fee charges in order to have its cards become as universally accepted as Visa and MasterCard issued credit and debit cards are. We have written previously about this. On top of this, lower revenue realization as a result of slow economic growth and currency decline relative to the U.S. dollar in most international markets have all affected the company’s bottom line.

amex q3fy16

In the previous quarter, a combination of pre-tax gains related to the sale of Costco related assets and efforts to cut down on operating costs offset a slight revenue reduction and resulted in a 35% increase in net income. Operating Expenses declined in this quarter as well but much slower than the 15% decline in the previous quarter. Meanwhile, revenue decreased much faster at 4.5% compared to the previous quarter. Going forward, the company faces the challenge of increasing its co-branding partners while keeping its transaction fees higher and maintaining its brand value of being the preferred choice of higher spending and higher value customers.  In the meanwhile, we expect the company to post year-on-year declines in most of its numbers and most of the gains to come from cost reduction efforts. The addition of Sam’s Club to its portfolio of co-branding partners is a step in the right direction on this front. Uber and Airbnb have also added American Express as one of the card merchants they are willing to accept, which also bodes well for the company going forward.

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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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