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AmEx Earnings Beat on Higher Card Spending

MA V DFS AXP

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American Express Co. (AXP - Analyst Report), also known as AmEx, reported its third-quarter 2013 operating earnings per share of $1.25. The result comfortably surpassed both the Zacks Consensus Estimate of $1.22 and the year-ago quarter earnings of $1.09 a share.

Consequently, net income from operations rose 9% year over year to $1.37 billion from $1.25 billion in the year-ago period.

AmEx’ total billed business, or global card spending, continued to witness improvement in the U.S. and beyond climbing 7% year over year to $236.2 billion. The increase came from international cards-in-force that escalated 7% year over year to $78.0 billion, whereas cards-in-use improved 8% in the U.S.

Behind the Headlines

AmEx posted total revenues, net of interest expenses, of $8.3 billion, up 6% year over year and 7% on constant currency basis. It also exceeded the Zacks Consensus Estimate of $8.22 billion. The year-over-year upside in revenues was supported by healthy growth in card spending, net interest income and the loan portfolio. Further, delinquency rates and yield exhibited stability, partially offset by lower lending balances.

However, provisions for losses were $492 million, edging up 3% from $479 million in the prior-year quarter. The increase was driven primarily by lower reserve release, partially offset by lower net write-offs in the reported quarter.

Meanwhile, AmEx’s total expenses increased 5% year over year to $5.81 billion in the reported quarter. This primarily reflected 8% rise in card member rewards, marketing and promotion expenses and 15% surge in professional services. These were partially offset by lower card member service expenses and stability in other operating expenses. Tax rate stood at 32% against 33% in the year-ago quarter.

Segment Results

U.S. Card Services reported a net income of $782 million, up 12% from $699 million in the prior-year quarter. Total revenue, net of interest expenses, increased 6% to $4.3 billion from $4.1 billion in the year-ago quarter.

International Card Services net income amounted to $142 million, declining 13% from $164 million in the year-ago quarter. However, total revenues, net of interest expenses, came in at $1.4 billion, up 3% from the year-ago quarter, driven by higher cardmember spending and annual cardmember fees.

Global Commercial Services net income escalated 43% to $261 million from $183 million in the prior-year quarter. Total revenues, net of interest expenses, improved 6% year over year to $1.2 billion, reflecting higher spending by corporate card members and growth in business travel commissions and fees.

Global Network & Merchant Services reported net income of $391 million, up 9% from $360 million in the prior-year quarter. Total revenues, net of interest expenses, stood at $1.4 billion, up 5% year over year and 7% on constant currency basis, driven by higher merchant-related revenues.

Corporate & Other reported net loss of $210 million, widening from net loss of $156 million a year ago.

Financial Update

As of Sep 30, 2013, AmEx's total assets stood at $150 billion (lower than $153 billion at 2012- end), while long-term debt totaled $53 billion (down from $59 billion at 2012-end) against cash of $22 billion (at par with 2012-end level). Meanwhile, shareholder equity amounted to $19 billion at the end of the reported quarter, unchanged from the 2012-end level.

As of Sep 30, 2013, AmEx's return on equity (ROE) was 24.3%, down from 26.3% in the year-ago period. Return on average common equity (ROCE) was 24.1%, declining from 26.0% in the prior-year quarter. Further, return on average tangible common equity was 30.6%, down from 33.5% in the comparable period last year. However, book value increased 3% year over year to $17.94 per share.

Capital Deployment Update

During the reported quarter, American Express repurchased 13 million shares, at an average price of $74.73, for a total of about $971.5 million. Approximately 86% of capital generated was distributed to shareholders through dividend payouts and share repurchases during the reported quarter.

American Express plans to repurchase shares worth $0.8 billion in the fourth quarter of 2013. Previously, management also disclosed its plans to buy back shares worth $3.2 billion in 2013, followed by another $1.0 billion of share repurchase in the first quarter of 2014.

Dividend Update

On Sep 23, 2013, the board of AmEx declared a regular quarterly dividend of 23 cents per share, which is payable on Nov 8, 2013 to shareholders of record as on Oct 4, 2013.

On Aug 9, 2013, AmEx paid a regular quarterly dividend of 23 cents per share to shareholders of record as on Jul 5, 2013.

In Apr 2013, this dividend was hiked by 15% from 20 cents, which was sustained even during the recession period.

Peer Take

AmEx’s peer, Discover Financial Services (DFS - Analyst Report) is expected to release its third-quarter results before the opening bell on Oct 21, 2013. Moreover, Visa Inc. (V - Analyst Report), is slated to release its fiscal fourth-quarter results after the closing bell on Oct 30. Another rival firm, MasterCard Inc. (MA - Analyst Report) is scheduled to release its third-quarter results before the market opens on Oct 31. All the stocks carry a Zacks Rank #2 (Buy).

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