10-QPeriod: Q1 FY2020

AMERICAN EXPRESS CO Quarterly Report for Q1 Ended Mar 31, 2020

Filed April 24, 2020For Securities:AXP

Summary

American Express Company (AXP) reported its first-quarter 2020 results, which were significantly impacted by the onset of the COVID-19 pandemic in the latter half of March. While the first two months of the quarter showed solid growth, the latter half saw a dramatic decline in business volumes. Total revenues net of interest expense decreased by 1% year-over-year. A substantial increase in provisions for credit losses, driven by a significant reserve build reflecting the deteriorating macroeconomic outlook due to COVID-19, led to a sharp decline in pretax income and net income. Net income fell by 76% to $367 million, or $0.41 per diluted share, compared to $1.55 billion, or $1.80 per diluted share, in the prior year. The company highlighted a 6% decrease in worldwide billed business for the quarter, with a significant 25% decline in March alone. Travel and entertainment (T&E) spending experienced a particularly sharp drop. Despite these challenges, American Express emphasized its strong balance sheet, capital, and liquidity position, and outlined a framework of four principles to navigate the uncertain environment: supporting colleagues, protecting customers and the brand, structuring for future growth, and remaining financially strong. The company also suspended share repurchases to preserve financial strength.

Financial Highlights

37 data points
Beta

Revenue

$6.30B

Net Income

$367.00M

5.8% Net Margin

EPS (Diluted)

$0.41

Total Assets

$186.00B

Cash & Equivalents

$38.61B

Free Cash Flow

-$2.55B

Financial Statements
Beta
Revenue$6.30B
Interest Expense$716.00M
Net Income$367.00M
EPS (Basic)$0.41
EPS (Diluted)$0.41
Shares Outstanding (Basic)807.00M
Shares Outstanding (Diluted)808.00M

Key Highlights

  • 1Revenue declined by 1% to $10.31 billion, primarily impacted by a 6% decrease in discount revenue due to a sharp drop in billed business in March.
  • 2Provisions for credit losses surged by 224% to $2.62 billion, reflecting a significant reserve build due to the worsening macroeconomic outlook from COVID-19.
  • 3Net income plummeted by 76% to $367 million ($0.41/share) from $1.55 billion ($1.80/share) in the prior year.
  • 4Worldwide billed business decreased by 6%, with a stark contrast between positive growth in January-February and a 25% decline in March, largely driven by travel restrictions.
  • 5Commercial billed business experienced a more rapid decline (6%) compared to consumer (3%), heavily impacted by reduced corporate T&E spending.
  • 6The company maintained strong capital and liquidity positions, with Cash and cash equivalents increasing to $36.1 billion.
  • 7Share repurchases were suspended to conserve capital amidst the uncertain economic environment.

Frequently Asked Questions

The COVID-19 pandemic had a significant negative impact, particularly in the latter half of March. This led to a sharp contraction in business volumes, a 6% decline in worldwide billed business for the quarter, and a substantial increase in provisions for credit losses due to a worsening economic outlook. Consequently, net income and earnings per share saw a dramatic decrease compared to the prior year.

American Express significantly increased its provisions for credit losses in Q1 2020 due to the deteriorating global macroeconomic outlook. The company stated that if current forecasts for GDP decline and unemployment hold or worsen, they anticipate another large reserve build in the second quarter. The adoption of the CECL methodology also means future credit loss estimates will incorporate forward-looking economic conditions.

Yes, recognizing the uncertainty in the business environment, American Express has suspended its share repurchase program. They also emphasized maintaining a strong balance sheet, capital, and liquidity profile as key principles for navigating the current challenges.

The Global Consumer Services Group (GCSG) saw a 4% increase in total revenues net of interest expense, but a significant 79% drop in pretax segment income due to higher credit loss provisions. The Global Commercial Services (GCS) segment experienced a 1% decrease in total revenues net of interest expense and a substantial 93% decrease in pretax segment income, also heavily impacted by credit loss provisions and a decline in commercial billed business.