Earnings Review: American Express Yet To Recover From Loss Of Costco, JetBlue Partnerships
American Express (NYSE: AXP) reported earnings for the first quarter of 2017 on Wednesday, April 19. The U.S.-based payments company reported net income of $1.24 billion, down 13% from the first quarter of the previous fiscal year. Reported earnings per share (EPS) fell by 8%, but were lower than the decline in net income as a result of share buybacks. As we had written previously about the company, its focus right now is in offsetting the impact of losing out on deals with long time co-branding partners Costco and JetBlue Airways, lowering operating costs, and offering services on its cards that can expand the number of places where they are accepted. Most of the changes in the company’s reported numbers in this quarter can be tied to one of these three initiatives.
Firstly, the company saw its non-interest revenue – revenue generated from transaction fees, card fees, and fees charged for providing other services on its debit and credit cards – decline by 2%, and interest income (net of interest expenses) declined by 5%. Overall revenue declined by 2%. However, this includes revenue generated from Costco-related business. According to the company, excluding that part of the business, year-over-year revenue growth was 7%. This increase was largely a result of higher spending per customer and can be attributed to higher expenditure on member rewards. In the first quarter, spending on rewards for card members increased by 6% compared to last year.
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Secondly, the company saw its expenses increase by 1%. However, breaking down these expenses one sees that spending on marketing and promotions is down 4% and spending on employee benefits is down by 6%. As already mentioned, spending on reward points increased by 6%. Since the company wants to reduce its annual operating expenses by around $1 billion, it will be interesting to see where it manages to squeeze out these cost reductions, as it appears that cutting expenditures on reward points might result in a negative impact on the top line.
Going forward, American Express needs to figure out a way to grow its U.S. consumer services base. Its non-interest revenue has come down from $ 2.03 billion in the first quarter of 2016 to $ 1.86 billion in 2017, and interest income has declined to $1.31 billion from $1.39 billion. This happened despite provision for loan losses growing from $290 million to $ 394 million and operating expenses remaining flat. Currently, it appears that American Express is mostly finding opportunities to grow its commercial and merchant services while it struggles to find a way to create ways of growing its revenue from consumer services. Since this has historically been one of the biggest revenue sources for the company and was affected the most by the loss of the deals with Costco and Jet Blue airways, the company needs to find a way of growing these numbers again.
Have more questions about American Express? See the links below:
- How Much Did American Express’ Revenue & Net Profit Grow In The Last Five Years?
- How Much Can American Express’ Revenue Grow In The Next Five Years?
- What Is American Express’ Fundamental Value Based On Expected 2016 Results?
- How Has American Express’ Revenue Composition Changed In The Last Five Years?
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