10-QPeriod: Q2 FY2017

AMERICAN EXPRESS CO Quarterly Report for Q2 Ended Jun 30, 2017

Filed July 25, 2017For Securities:AXP

Summary

American Express Company (AXP) reported its financial results for the second quarter and first half of 2017. For the three months ended June 30, 2017, total revenues net of interest expense increased slightly to $8.31 billion, while net income saw a significant decrease to $1.34 billion, compared to $2.02 billion in the prior year. This decline was largely attributed to the absence of a significant gain recognized in the prior year related to the sale of the Costco HFS portfolio. Provisions for losses increased by 26% to $584 million, driven by growth in Card Member loans and a slight increase in delinquencies and write-off rates. For the six months ended June 30, 2017, total revenues net of interest expense decreased slightly to $16.20 billion, and net income fell by 25% to $2.58 billion, compared to $3.44 billion in the prior year, also impacted by prior year portfolio sale gains. The company highlighted steady performance in billed business, with growth in international markets and strong performance from small and middle-market businesses. Despite the year-over-year decline in net income, the company continued to return capital to shareholders through dividends and share repurchases, signaling confidence in its ongoing financial strength and strategic execution.

Financial Highlights

39 data points
Beta

Revenue

$6.22B

Net Income

$1.34B

21.6% Net Margin

EPS (Diluted)

$1.47

Total Assets

$167.00B

Cash & Equivalents

$30.76B

Free Cash Flow

$2.86B

Financial Statements
Beta
Revenue$6.22B
Operating Income$2.58B
Interest Expense$521.00M
Net Income$1.34B
EPS (Basic)$1.48
EPS (Diluted)$1.47
Shares Outstanding (Basic)890.00M
Shares Outstanding (Diluted)893.00M

Key Highlights

  • 1Total revenues net of interest expense saw a modest increase for the quarter, reaching $8.31 billion, but declined slightly for the year-to-date period to $16.20 billion.
  • 2Net income for the quarter decreased significantly by 33% to $1.34 billion, and for the year-to-date by 25% to $2.58 billion, largely due to the absence of prior year gains from portfolio sales (Costco and JetBlue).
  • 3Provisions for losses increased substantially, up 26% for the quarter to $584 million and 29% year-to-date to $1.16 billion, primarily due to growth in Card Member loans and slightly higher delinquency and write-off rates.
  • 4Card Member engagement expenses (marketing, rewards, services) increased by 10% for the quarter to $3.11 billion, reflecting investments in premium card benefits and loyalty programs.
  • 5The company continued to return capital to shareholders, with $1.1 billion in dividends and share repurchases in the quarter and $2.3 billion year-to-date, underscoring financial flexibility.
  • 6Worldwide billed business remained flat for the quarter and year-to-date, with strong growth in international markets (9% and 11% respectively) offsetting a decline in the U.S. (-4% and -5% respectively), influenced by the prior year's Costco relationship.

Frequently Asked Questions

The significant decrease in net income for both the quarter and the year-to-date period was primarily due to the absence of large gains recognized in the prior year from the sale of the Costco and JetBlue cobrand card portfolios. These gains significantly boosted the prior year's net income, creating a substantial year-over-year comparison challenge.

Provisions for losses increased primarily due to strong growth in Card Member loans and a slight increase in delinquency and net write-off rates. The company noted that these rates increased due to the seasoning of loans related to newer Card Members and a shift towards non-cobrand lending products, which tend to have slightly higher write-off rates. Management expects provisions for losses to continue growing faster than loans for the remainder of the year.

Worldwide billed business was relatively flat for both the three and six-month periods. However, there was a notable geographic divergence: U.S. billed business decreased by 4% and 5% respectively, largely influenced by the absence of Costco-related volumes from the prior year. In contrast, non-U.S. billed business showed robust growth, increasing by 9% for the quarter and 11% year-to-date, indicating strong international performance.

American Express demonstrated a commitment to returning capital to shareholders through dividends and share repurchases. In the second quarter of 2017, $1.1 billion was returned, and $2.3 billion year-to-date. The company also announced plans to increase its quarterly dividend to $0.35 per share starting in Q3 2017 and received non-objection from the Federal Reserve for a capital plan that includes up to $4.4 billion in share repurchases through Q2 2018.