01—Abstract
Summary
Summary of the 10-Q filed April 24, 2020. Cited figures are marked; the original filing is the authoritative source.
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%a 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 millionb, 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.
02—Key points
Key Highlights
- Revenue 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.
- Provisions for credit losses surged by 224% to $2.62 billion, reflecting a significant reserve build due to the worsening macroeconomic outlook from COVID-19.
- Net income plummeted by 76% to $367 million ($0.41/share) from $1.55 billion ($1.80/share) in the prior year.
- Worldwide 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.
- Commercial billed business experienced a more rapid decline (6%) compared to consumer (3%), heavily impacted by reduced corporate T&E spending.
- The company maintained strong capital and liquidity positions, with Cash and cash equivalents increasing to $36.1 billion.
- Share repurchases were suspended to conserve capital amidst the uncertain economic environment.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-QQ1 FY2020filed April 24, 2020Financial Statements
Q1 FY2020 against Q1 FY2019
| Line item | Q1 FY2020Q1 FY2019 | Change |
|---|---|---|
| Revenue | $6.30B$6.70B | −6.0% |
| Interest Expense | $716.00M$895.00M | −20.0% |
| Net Income | $367.00M$1.55B | −76.3% |
| EPS (Basic) | $0.41$1.81 | −77.3% |
| EPS (Diluted) | $0.41$1.80 | −77.2% |
| Shares Outstanding (Basic) | 807.00M841.00M | −4.0% |
| Shares Outstanding (Diluted) | 808.00M843.00M | −4.2% |
05—Questions
Frequently Asked Questions
How did COVID-19 impact American Express's financial performance in Q1 2020?
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.
What is the outlook for credit losses given the current economic environment?
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.
Has American Express taken any steps to preserve its financial strength?
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.
How did different business segments perform?
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.
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