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American Express Earnings Beat Estimates in Q2, Fall Y/Y

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American Express Co. (AXP - Free Report) or AmEx reported second-quarter 2015 operating earnings per share (EPS) of $1.42, comfortably beating the Zacks Consensus Estimate of $1.33. The company has kept its earnings streak alive with the sixth consecutive beat. Including the quarter under review, the average four-quarter earnings beat is 4.3%. However, EPS declined by a penny from the year-ago quarter.

The EPS was backed by expense control and effective capital deployment by way of share buyback. Higher Card Member spending and loan volumes also helped to offset the negative impact of a strong U.S. dollar.

AmEx’s total billed business, or global card spending, increased 1.5% year over year to $262 billion. The improvement came from cards used in the U.S. that grew 4.7% year over year to $181.6 billion, although international business fell 5.1% year over year to $80.4 billion primarily due to a stronger dollar.

Quarter in Details

AmEx’s reported revenues were lower than what was previously estimated. While $8.45 billion in revenues were estimated for the quarter, the company managed to post $8.3 billion. Excluding the impact of foreign exchange rates and business travel results in the year-ago period, adjusted revenues rose 5%. The increase came on the back of higher Card Member spending and growth in loan portfolio.

However, provisions for losses decreased 4% to $467 million, primarily owing to lower net write-offs in the current quarter, partly offset by the effect of a larger reserve release a year ago.

AmEx’s total expenses decreased 4% year over year to $5.6 billion.

The tax rate remained unchanged from the year-ago quarter at 34%.

Segment Results

U.S. Card Services reported net income of $886 million, up 15% year over year. Total revenue, net of interest expenses, increased 6% to $4.7 billion, primarily owing to higher net interest income and card member spending.

International Card Services’ net income amounted to $125 million, up 62% from the year-ago quarter. Total revenue, net of interest expenses, came in at $1.3 billion, down 10% year over year, primarily due to the strengthening of the U.S. dollar.

Global Commercial Services’ net income plunged 64% year over year to $203 million. Moreover, total revenue, net of interest expenses, fell 31% year over year to $881 million.

Global Network & Merchant Services reported net income of $448 million, up 20% year over year.  However, total revenue, net of interest expenses, declined 4% year over year to $1.4 billion.

Corporate & Other reported net loss of $189 million, narrower than net loss of $252 million incurred a year ago.

Financial Update

As of Jun 30, 2015, AmEx’s total assets were $157 billion (up from $152 billion in the prior-year quarter), while long-term debt totaled $53 billion (down from $55 billion in the year-ago quarter) against cash of $21 billion (up from $18 billion in second-quarter 2014). Meanwhile, shareholder equity amounted to $22 billion this Jun end, up from $20 billion at the end of Jun 2014.

As of Jun 30, 2015, AmEx’s return on average common equity was 28.8%, up from 28.5% in Jun 2014. Further, book value increased 13% year over year to $21.85 per share.

Zacks Rank    

AmEx currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the space are Consumer Portfolio Services, Inc. (CPSS - Free Report) , Financial Engines, Inc. (FNGN - Free Report) and On Deck Capital, Inc. (ONDK - Free Report) . Each these stocks carries a Zacks Rank # 2 (Buy).

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