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American Express (AXP) Q1 Earnings Beat Despite Coronavirus

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American Express Co. (AXP - Free Report) delivered first-quarter 2020 earnings of $1.98 per share, beating the Zacks Consensus Estimate by 17.2%. However, the bottom line was down 1.5% year over year.

The quarter reflected softness in spending volumes beginning the last few days of February that significantly accelerated in March as a result of the COVID-19 impacts.

Total revenues of $10.3 billion missed the Zacks Consensus Estimate by 3.7% and also dipped 1% year over year. The top line was affected by weak spending volumes due to the COVID-19 impacts.

Total expenses of $7.2 billion decreased 5% year over year owing to a decline in operating costs.

Total provision of $2.6 billion skyrocketed 221% year over year as the company added $17 billion to its capital reserves in a bid to strengthen its balance sheet in the light of  a significant deterioration in the global macroeconomic outlook as a result of the coronavirus adversity.

American Express Company Price, Consensus and EPS Surprise

Segmental Update

American Express’ Global Consumer Services segment reported net income of $201 million, down 79% year over year. Total revenues, net of interest expenses of $6 billion, were up 4% year over year, reflecting higher net interest income and card fees, partially offset by lower Card Member spending.

Global Commercial Services’ net income of $38 million plunged 92% year over year. Total revenues, net of interest expenses, were flat year over year at $3.1 billion as increased net interest income and card fees were offset by softness in Card Member spending.

Global Merchant and Network Services’ net income dropped 27% year over year to $417 million in the reported quarter. Total revenues and net of interest expenses were down 10% year over year to $1.4 billion.

Our Take

The evolving macroeconomic environment will likely pose a challenge to American Express results as overall spending is expected to stay subdued, which will adversely impact the company’s business volumes.
The company’s strategy to control costs and selectively invest in initiatives that are key to its long-term growth policy will help it emerge much stronger from the current situation.

In order to better serve its customers amid the COVID-19 pandemic, the company is offering its consumer and small business Card Members an array of short- and long-term financial assistance programs to help them weather the storm.

Overall, the company’s strong capital position along with its steady investments in product innovation and growth opportunities bodes well for the long haul.

Zacks Rank & Stocks to Consider

American Express carries a Zacks Rank #4 (Sell).

Some better-ranked companies in the same space are Virtu Financial, Inc. (VIRT - Free Report) , PRA Group, Inc. (PRAA - Free Report) and PJT Partners Inc. (PJT - Free Report) . While both Virtu Financial and PJT Partners sport a Zacks Rank #1 (Strong Buy), PRA Group holds a Zacks Rank #2 (Buy).

You can see the complete list of today’s Zacks #1 Rank stocks here.

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