01—Abstract
Summary
Summary of the 10-Q filed July 24, 2020. Cited figures are marked; the original filing is the authoritative source.
American Express Company (AXP) reported its second-quarter 2020 financial results, reflecting significant impacts from the COVID-19 pandemic.
Total revenues net of interest expense decreased by 29% year-over-year to $7.7 billiona. This decline was primarily driven by a 34% decrease in billed business, particularly in travel and entertainment (T&E) spend, which fell by 77% in June compared to the previous year. Provisions for credit losses saw a substantial increase of 81% to $1.6 billion, driven by higher reserve builds due to the deteriorating macroeconomic outlook.
Despite the challenging environment, American Express maintained a strong capital and liquidity position. The company emphasized its commitment to managing expenses tightly while continuing to invest in initiatives for long-term growth.
Share repurchases were suspended in March 2020, but the company intends to maintain its quarterly dividend. Management highlighted ongoing efforts to support customers and merchants, including participation in the U.S. Paycheck Protection Program and global Shop Small campaigns.
02—Key points
Key Highlights
- Total revenues net of interest expense declined 29% year-over-year to $7.7 billion due to the economic impact of COVID-19.
- Billed business decreased by 34% year-over-year, with significant declines in travel and entertainment (T&E) spend (-77% in June).
- Provisions for credit losses surged by 81% to $1.6 billion, driven by increased reserve builds reflecting a weaker economic outlook.
- Net income dropped 85% to $257 million, resulting in diluted EPS of $0.29.
- The company maintained robust capital and liquidity levels, well above regulatory requirements.
- Share repurchases were suspended in March 2020 to preserve financial strength.
- Card fees showed strong year-over-year growth (15%), partly due to their delayed reaction to economic shifts and stable Card Member attrition.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2020filed July 24, 2020Financial Statements
Q2 FY2020 against Q2 FY2019
| Line item | Q2 FY2020Q2 FY2019 | Change |
|---|---|---|
| Revenue | $4.36B$7.08B | −38.5% |
| Interest Expense | $542.00M$891.00M | −39.2% |
| Net Income | $257.00M$1.76B | −85.4% |
| EPS (Basic) | $0.29$2.07 | −86.0% |
| EPS (Diluted) | $0.29$2.07 | −86.0% |
| Shares Outstanding (Basic) | 804.00M834.00M | −3.6% |
| Shares Outstanding (Diluted) | 805.00M836.00M | −3.7% |
05—Questions
Frequently Asked Questions
How did COVID-19 impact American Express's financial performance in Q2 2020?
The COVID-19 pandemic significantly impacted American Express's performance. Billed business, particularly in travel and entertainment, saw substantial declines. This led to a 29% decrease in total revenues net of interest expense. The company also significantly increased its provisions for credit losses due to the worsening economic outlook.
What is the outlook for credit losses, and how is American Express managing this?
American Express significantly increased its provisions for credit losses by 81% year-over-year, reflecting a deterioration in the global macroeconomic outlook, including higher unemployment and GDP contraction. The company is using the CECL methodology to estimate expected credit losses and is closely monitoring economic conditions and adjusting reserves accordingly. They also have customer pandemic relief programs to support impacted individuals.
What is the company's capital and liquidity position?
American Express maintained a strong capital and liquidity position, with capital ratios well above regulatory requirements. The company has substantial liquidity to manage through the uncertain economic period. To preserve this strength, share repurchases were suspended in March 2020.
What is the company's strategy for returning capital to shareholders?
While share repurchases were suspended in March 2020 due to economic uncertainty, American Express intends to maintain its quarterly common share dividend of $0.43 per share for the third quarter of 2020, subject to Board approval. Future capital distributions will depend on various factors including capital levels, regulatory requirements, business results, and economic conditions.
06—Continue