01—Abstract
Summary
Summary of the 10-Q filed July 31, 2008. Cited figures are marked; the original filing is the authoritative source.
American Express Company (AXP) reported its second-quarter 2008 financial results, facing a challenging economic environment.
Net income for the quarter decreased by 38% to $653 milliona, or $0.56 per diluted share, compared to the prior year. This decline was attributed to increased provisions for losses, reflecting a deteriorating credit environment, particularly in the U.S. cardmember lending portfolio, and a charge to the fair value of the company's interest-only strip. Despite these headwinds, total revenues grew 8% year-over-year, driven by robust performance in discount revenue, net card fees, and travel commissions and fees, indicating continued customer spending.
The company also highlighted progress on its acquisition of GE's Corporate Payment Services (CPS) business and significant litigation settlements with Visa and MasterCard, which will provide substantial future payments. Looking ahead, American Express revised its full-year EPS growth forecast downwards from 4-6%b due to the increasing U.S. cardmember lending write-off rates and weakening consumer spending observed in June. The company is intensifying cost-cutting measures to mitigate these impacts.
While the credit environment presents challenges, the company's diversified business segments and strong cardmember loyalty continue to drive revenue growth, albeit at a slower pace. Investors should monitor credit loss trends and the effectiveness of cost-reduction initiatives.
02—Key points
Key Highlights
- Net income for the quarter decreased by 38% to $653 million ($0.56/share) compared to Q2 2007, impacted by higher credit loss provisions.
- Total revenues increased by 8% to $8.34 billion, driven by strong growth in discount revenue and net card fees.
- Provisions for losses surged by 93% to $1.89 billion, primarily due to increased cardmember lending provisions reflecting a challenging U.S. credit environment.
- The company revised its full-year EPS growth outlook downward from 4-6% due to further credit deterioration and moderating U.S. spending in June.
- Completed the acquisition of GE's Corporate Payment Services (CPS) business for $2.3 billion in March 2008.
- Received $70 million from Visa in both Q1 and Q2 2008, meeting performance criteria for settlement payments, with significant further payments expected from Visa and MasterCard.
- Card billed business grew 12% globally, indicating resilient customer spending despite economic concerns.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2008filed July 31, 2008Financial Statements
| Operating Income | $774.00M |
| Interest Expense | $903.00M |
| Net Income | $653.00M |
| EPS (Basic) | $0.56 |
| EPS (Diluted) | $0.56 |
| Shares Outstanding (Basic) | 1.15B |
| Shares Outstanding (Diluted) | 1.16B |
05—Questions
Frequently Asked Questions
What led to the significant increase in provisions for losses?
The provisions for losses increased by 93% to $1.89 billion primarily due to higher cardmember lending provisions. This reflects a deteriorating credit environment in the U.S., leading to increased write-off and delinquency rates, as well as higher loan and business volumes.
How has the acquisition of GE's Corporate Payment Services (CPS) business impacted the results?
The acquisition of CPS, completed on March 28, 2008, for $2.3 billion, contributed to higher 'Other revenues' and is being integrated into the Global Commercial Services and U.S. Card Services segments. While it added to revenue streams, the related expenses were also incurred, and the acquisition did not have a significant impact on overall results for the reported quarters.
What is the outlook for American Express's full-year earnings per share (EPS) growth?
American Express revised its full-year EPS growth forecast downwards. Initially expecting 4-6% growth, the company now anticipates slower growth due to further credit deterioration and moderating U.S. spending observed in June. The company is implementing re-engineering efforts to reduce costs and offset some of these impacts.
What is the status of the settlements with Visa and MasterCard?
American Express reached settlement agreements with both Visa and MasterCard, expected to total up to $4.05 billion. The company received $70 million from Visa in both the first and second quarters of 2008, meeting performance criteria. The MasterCard settlement includes quarterly payments starting in Q3 2008, and both are subject to ongoing performance criteria within the U.S. Global Network Services business. These payments are recognized in 'Other, net' expenses.
06—Continue