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American Express (AXP) Q3 Earnings Top & Grow Y/Y, View Up

Zacks Equity Research
Updated

American Express Company AXP reported adjusted earnings per share (EPS) of $1.50, beating the Zacks Consensus Estimate by 2%. Earnings witnessed a sharp 21% year-over-year improvement.

Better-than-expected results were mainly backed by increase in net interest income, higher Card spending at lower tax rate and the effect of share buyback. The company continues to witness strong loan growth and credit metrics, plus lower operating costs.

American Express Company Price, Consensus and EPS Surprise

American Express Company Price, Consensus and EPS Surprise | American Express Company Quote

Delving Deeper

Revenues came in at $8.4 billion, 1.5% ahead of the Zacks Consensus Estimate of $8.3 billion. Top line increased 8.5% year over year on higher net interest income and Card Member spending. However, lower discount rate limited the upside.

Provisions for losses totaled $769 million, up 53% year over year and attributable to growth in the loan portfolio besides an expected escalation in the lending write-off and delinquency rates.

Total expenses of $5.8 billion rose 6% year over year due to higher rewards’ expenses for adding new features to the company’s products and higher Card Member spending. However, marketing costs decreased.

The effective tax rate was 26%, reflecting a fall from 34% in the year-ago quarter. The tax rate declined owing to realization of certain foreign tax credits in the current year and the geographic mix of earnings.

Adjusted operating expenses reduced 4% year over year to $2.6 billion.

Segment Results

American Express’ U.S. Consumer Services segment reported net income of $475 million, up 18% year over year. Total revenue, net of interest expense of $3.3 billion was up 13% year over year, reflecting higher net interest income and Card Member spending.

International Consumer and Network Services’ net income amounted to $286 million, up 85% year over year. Total revenue, net of interest expenses, climbed 7% year over year to $1.5 billion, primarily on the back of higher Card Member spending and net interest income.

Global Commercial Services’ net income of $529 million rallied 14% year over year. Total revenue, net of interest expenses, rose 6% year over year to $2.6 billion, primarily reflecting higher Card Member spending.

Global Merchant Services’ net income inched up 3% year over year to $368 million in the reported quarter. Total revenue, net of interest expenses, increased 4% year over year at $1.2 billion on higher Card Member spending, partially offset by a lower discount rate.

Corporate and Other reported net loss of $302 million compared unfavorably with the net loss of $239 million in the year-ago quarter.

Guides Higher

The company guided its 2017 earnings per share higher to a range of $5.80–$5.90 from earlier guidance of $5.60–$5.80 to account for continued strength in business.

Recent Developments

American Express announced that its CEO Kenneth Chenault will step down from his post in February next year after completing nearly a long 17-year term.

Vice Chairman Stephen Squeri will succeed Chenault.

Zacks Rank & Key Picks

American Express carries a Zacks Rank #3 (Hold). Some better-ranked stocks from the same space are Moody’s Corporation MCO, Euronet Worldwide, Inc. EEFT and CIT Group Inc. CIT.

CIT Group will report third-quarter earnings on Oct 24. It sports a Zacks Rank #1 (Strong Buy). The Zacks Consensus Estimate is pegged at 83 cents per share, up 13.2% year over year. You can see the complete list of today’s Zacks #1 Rank stocks here.

Moody’s Corporation will report third-quarter earnings on Nov 3. It carries a Zacks Rank #2 (Buy). The Zacks Consensus Estimate is pegged at $1.32 per share, down 1.8% year over year.

Euronet will report third-quarter earnings on Oct 20. It carries a Zacks Rank of 2 as well. The Zacks Consensus Estimate is pegged at $1.60 per share, up 18.5% year over year.
 

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