American Express Company
American Express Company (NYSE: AXP) today reported third quarter income from
continuing operations of $1.1 billion, up 15 percent from $934 million a year
ago. Diluted earnings per share were $0.90, up 18 percent from $0.76.
(Millions, except per share amounts)
Quarters Ended Percentage Nine Months Ended Percentage
September 30, Inc/(Dec) September 30, Inc/(Dec)
--------------- ---------- ----------------- ----------
2007 2006 2007 2006
------- ------- -------- --------
Revenues net of
interest
expense $6,945 $6,265 11% $20,367 $18,479 10%
Income From
Continuing
Operations $1,074 $ 934 15% $ 3,209 $ 2,716 18%
(Loss) Income
From
Discontinued
Operations $ (7) $ 33 # $ (28) $ 69 #
Net Income $1,067 $ 967 10% $ 3,181 $ 2,785 14%
Earnings Per
Common Share -
Basic:
Income From
Continuing
Operations $ 0.92 $ 0.78 18% $ 2.72 $ 2.23 22%
(Loss) Income
From
Discontinued
Operations $(0.01) $ 0.02 # $ (0.02) $ 0.06 #
Net Income $ 0.91 $ 0.80 14% $ 2.70 $ 2.29 18%
Earnings Per
Common Share -
Diluted:
Income From
Continuing
Operations $ 0.90 $ 0.76 18% $ 2.67 $ 2.19 22%
(Loss) Income
From
Discontinued
Operations - $ 0.03 # $ (0.02) $ 0.05 #
Net Income $ 0.90 $ 0.79 14% $ 2.65 $ 2.24 18%
Average Common
Shares
Outstanding
Basic 1,170 1,202 (3%) 1,179 1,217 (3%)
Diluted 1,192 1,227 (3%) 1,202 1,242 (3%)
Return on
Average
Equity* 38.2% 33.6% 38.2% 33.6%
---------------------- ------- ---------- -------- -------- ----------
* Computed on a trailing 12-month basis using net income over average
total shareholders' equity (including discontinued operations) as
included in the Consolidated Financial Statements prepared in
accordance with U.S. generally accepted accounting principles
(GAAP).
# Denotes a variance of more than 100%.
American Express Company (NYSE: AXP) today reported third quarter income from
continuing operations of $1.1 billion, up 15 percent from $934 million a year
ago. Diluted earnings per share were $0.90, up 18 percent from $0.76.
As previously disclosed, the Company entered into an agreement to sell its
international banking subsidiary, American Express Bank Ltd.(AEB). Net income,
which includes AEB within discontinued operations, totaled $1.1 billion for the
quarter, up 10 percent from $967 million a year ago. On a per share basis, net
income was $0.90, up 14 percent from $0.79.
Consolidated revenues net of interest expense rose 11 percent to $6.9 billion,
up from $6.3 billion a year ago.
Consolidated expenses totaled $4.5 billion, up 9 percent from $4.2 billion a
year ago.
The Company's return on equity (ROE) was 38.2 percent.
"Our strong earnings growth this quarter reflected a 16 percent rise in combined
spending by consumers, small businesses and corporate Cardmembers," said Kenneth
I. Chenault, chairman and chief executive.
"Investments that expanded our service, rewards and loyalty programs helped to
add 2.5 million cards during the quarter while also generating excellent
spending increases from existing Cardmembers.
"While we continue to be cautious about the overall economy, our ongoing focus
on the premium sector and careful management of loan and investment portfolios
allowed us to maintain strong credit quality that compares favorably to the
industry.
"We continued to build on the momentum of recent periods, generating excellent
revenue growth and ending the quarter in a strong competitive position."
The third quarter results included a $75 million tax benefit primarily related
to the resolution of prior years' tax items. Also included in results was $81
million ($41 million after-tax) of previously disclosed charges primarily
related to the contracted sale of American Express International Deposit Company
(AEIDC), a wholly-owned subsidiary of the Company which issues investment
certificates to AEB's customers.
The year-ago quarter results included a $33 million ($24 million after-tax) gain
related to the sale of the Company's card operations in Malaysia and Indonesia.
Discontinued operations
Discontinued operations included a loss of $7 million primarily reflecting the
results of AEB. In the year-ago period, discontinued operations included income
of $33 million.
Segment results
As previously announced, the Company reorganized its businesses into two
customer-focused groups - the Global Consumer Group and the Global
Business-to-Business Group. The Company will continue to report the U.S. Card
Services segment and Global Network & Merchant Services segments consistent with
previous reporting. The previously reported International Card & Global
Commercial Services segment will now be reported as two separate segments: the
International Card Services segment and the Global Commercial Services segment.
The Company's U.S. Card Services and International Card Services segments are
aligned with the Global Consumer Group and the Company's Global Network &
Merchant Services and Global Commercial Services segments are aligned with the
Global Business-to-Business Group.
In addition, beginning with the third quarter of 2007, and for all prior
periods, AEB results have been removed from the Corporate & Other segment and
reported within the discontinued operations line on the Company's Consolidated
Statements of Income. In addition to the agreement to sell AEB to Standard
Chartered PLC, AEIDC was also contracted to be sold to Standard Chartered 18
months after the close of the AEB sale through a put/call agreement. AEIDC will
continue to be reflected in continuing operations within the Corporate & Other
segment until one year before the anticipated close of this portion of the
transaction. Based on the assumed completion of the AEB sale in the first
quarter of 2008, we expect to begin reporting AEIDC's results in the
discontinued operations line in the third quarter of 2008. The following segment
discussion, as well as the selected financial data for all periods presented,
reflect the changes noted above.
U.S. Card Services reported third quarter net income of $592 million, up 6
percent from $558 million a year ago.
Revenues net of interest expense for the third quarter increased 12 percent to
$3.6 billion, reflecting higher spending and borrowing by consumers and small
businesses, which were partially offset by higher interest expense.
Total expenses increased 6 percent. Marketing, promotion, rewards and cardmember
services expenses increased 7 percent from the year-ago period primarily due to
higher rewards costs partially offset by a targeted decrease in marketing and
promotion expenses. Human resources and other operating expenses increased 5
percent.
Strong growth in loans outstanding, along with write-off and delinquency rates
returning to levels more consistent with historical rates from the unusually low
levels of a year ago, resulted in a 44 percent increase in provisions for
losses.
Results for the third quarter included $18 million of the previously mentioned
tax benefit.
International Card Services reported third quarter net income of $140 million,
up 32 percent from $106 million a year ago.
Revenues net of interest expense increased 17 percent to $1.1 billion,
reflecting higher Cardmember spending, as well as higher loan balances.
Total expenses increased 27 percent. Human resources and other operating
expenses increased 17 percent from a year ago when these expenses included a
gain related to the sale of the Company's card operations in Malaysia and
Indonesia. Marketing, promotion, rewards and cardmember services expenses
increased 43 percent due to an increase in rewards and higher marketing
promotion costs.
Provisions for losses were unchanged from a year ago as growth in the loan
portfolio was offset by a lower level of write off and delinquency rates.
Results for the third quarter included $17 million of the previously mentioned
tax benefit and certain consolidated tax benefits arising from this segment's
ongoing non-U.S. funding activities.
Global Commercial Services reported third quarter net income of $135 million, up
29 percent from $105 million a year ago. Revenues net of interest expense
increased 12 percent to $1.1 billion, reflecting higher spending by corporate
Cardmembers.
Total expenses increased 10 percent. Human resources and other operating
expenses increased 10 percent reflecting continued growth in the business.
Marketing, promotion, rewards and cardmember services expenses increased 8
percent.
Provisions for losses increased 24 percent from year-ago levels, primarily
reflecting higher volumes.
Results for the third quarter included $9 million of the previously mentioned
tax benefit.
Global Network & Merchant Services reported third quarter net income of $266
million, up 25 percent from $212 million a year ago.
Revenues net of interest expense for the third quarter increased 17 percent to
$980 million. The increase reflected continued strong growth in merchant-related
revenue primarily from higher company-wide billed business.
Spending on Global Network Services cards increased 45 percent from year-ago
levels reflecting continued growth in spending on cards issued by bank partners.
Cards-in-force issued by bank partners increased 32 percent.
Total expenses increased 12 percent, reflecting higher human resources costs and
expanded marketing and promotion activities.
Results for the third quarter included $22 million of the previously mentioned
tax benefit.
Corporate and Other reported third quarter net expenses of $59 million, compared
with net expenses of $47 million a year ago. The increase was primarily due to
the previously mentioned charges at AEIDC.
American Express Company (www.americanexpress.com) is a leading global payments,
network and travel company founded in 1850.
Note: The 2007 Third Quarter Earnings Supplement will be available today on the
American Express web site at http://ir.americanexpress.com. An investor
conference call will be held with Chief Financial Officer, Daniel T. Henry, at
5:00 p.m. (EDT) today to discuss third quarter earnings results, operating
performance and other topics that may be raised during the discussion. Live
audio of the investor conference call will be accessible to the general public
on the American Express web site at http://ir.americanexpress.com. A replay of
the conference call will be available later today at the same web site address.
This release includes forward-looking statements, which are subject to risks and
uncertainties. The words "believe," "expect," "anticipate," "optimistic,"
"intend," "plan," "aim," "will," "may," "should," "could," "would," "likely,"
and similar expressions are intended to identify forward-looking statements.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date on which they are made. The Company
undertakes no obligation to update or revise any forward-looking statements.
Factors that could cause actual results to differ materially from these
forward-looking statements include, but are not limited to, the following: the
Company's ability to meet its ROE target range of 33 to 36 percent on average
and over time, which will depend in part on factors such as the Company's
ability to generate sufficient revenue growth and achieve sufficient margins,
fluctuations in the capital required to support its businesses, the mix of the
Company's financings, and fluctuations in the level of the Company's
shareholders' equity due to share repurchases, dividends, changes in accumulated
other comprehensive income and accounting changes, among other things; the
actual amount spent by the Company in the fourth quarter of 2007 on marketing,
promotion, rewards and cardmember services based on management's assessment of
competitive opportunities and other factors affecting its judgment; the
Company's ability to grow its business and meet or exceed its return on
shareholders' equity target by reinvesting approximately 35 percent of
annually-generated capital, and returning approximately 65 percent of such
capital to shareholders, over time, which will depend on the Company's ability
to manage its capital needs and the effect of business mix, acquisitions and
rating agency requirements; consumer and business spending on the Company's
credit and charge card products and Travelers Cheques and other prepaid products
and growth in card lending balances, which depend in part on the ability to
issue new and enhanced card and prepaid products, services and rewards programs,
and increase revenues from such products, attract new cardmembers, reduce
cardmember attrition, capture a greater share of existing cardmembers' spending,
and sustain premium discount rates on its card products in light of regulatory
and market pressures, increase merchant coverage, retain cardmembers after low
introductory lending rates have expired, and expand the Global Network Services
business; the success of the Global Network Services business in partnering with
banks in the United States, which will depend in part on the extent to which
such business further enhances the Company's brand, allows the Company to
leverage its significant processing scale, expands merchant coverage of the
network, provides Global Network Services' bank partners in the United States
the benefits of greater cardmember loyalty and higher spend per customer, and
merchant benefits such as greater transaction volume and additional higher
spending customers; fluctuations in interest rates (including fluctuations in
benchmarks, such as LIBOR and other benchmark rates, used to price loans and
other indebtedness, as well as credit spreads in the pricing of loans and other
indebtedness), which impact the Company's borrowing costs, return on lending
products and the value of the Company's investments; the continuation of
favorable trends, including increased travel and entertainment spending, and the
overall level of consumer confidence; the costs and integration of acquisitions;
the underlying assumptions and expectations related to the sale of the American
Express Bank Ltd. businesses proving to be inaccurate or unrealized, including,
among other things, the likelihood of and expected timing for completion of the
transaction, the proceeds to be received by the Company in the transaction and
the transaction's impact on the Company's earnings; the success, timeliness and
financial impact (including costs, cost savings and other benefits including
increased revenues), and beneficial effect on the Company's operating expense to
revenue ratio, both in the short-term and over time, of reengineering
initiatives being implemented or considered by the Company, including cost
management, structural and strategic measures such as vendor, process,
facilities and operations consolidation, outsourcing (including, among others,
technologies operations), relocating certain functions to lower-cost overseas
locations, moving internal and external functions to the Internet to save costs,
and planned staff reductions relating to certain of such reengineering actions;
the Company's ability to reinvest the benefits arising from such reengineering
actions in its businesses; the ability to control and manage operating,
infrastructure, advertising and promotion expenses as business expands or
changes, including the ability to accurately estimate the provision for the cost
of the Membership Rewards program; the Company's ability to manage credit risk
related to consumer debt, business loans, merchant bankruptcies and other credit
trends and the rate of bankruptcies, which can affect spending on card products,
debt payments by individual and corporate customers and businesses that accept
the Company's card products and returns on the Company's investment portfolios;
bankruptcies, restructurings, consolidations or similar events affecting the
airline or any other industry representing a significant portion of the
Company's billed business, including any potential negative effect on particular
card products and services and billed business generally that could result from
the actual or perceived weakness of key business partners in such industries;
the triggering of obligations to make payments to certain co-brand partners,
merchants, vendors and customers under contractual arrangements with such
parties under certain circumstances; a downturn in the Company's businesses
and/or negative changes in the Company's and its subsidiaries' credit ratings,
which could result in contingent payments under contracts, decreased liquidity
and higher borrowing costs; fluctuations in foreign currency exchange rates;
accuracy of estimates for the fair value of the assets in the Company's
investment portfolio and, in particular, those investments that are not readily
marketable, including the valuation of the interest-only strip relating to the
Company's lending securitizations; the Company's ability to invest in technology
advances across all areas of its business to stay on the leading edge of
technologies applicable to the payments industry; the Company's ability to
protect its intellectual property rights (IP) and avoid infringing the IP of
other parties; the potential negative effect on the Company's businesses and
infrastructure, including information technology, of terrorist attacks, natural
disasters or other catastrophic events in the future; political or economic
instability in certain regions or countries, which could affect lending and
other commercial activities, among other businesses, or restrictions on
convertibility of certain currencies; changes in laws or government regulations;
accounting changes; outcomes and costs associated with litigation and compliance
and regulatory matters; and competitive pressures in all of the Company's major
businesses. A further description of these and other risks and uncertainties can
be found in the Company's Annual Report on Form 10-K for the year ended December
31, 2006, and its other reports filed with the SEC.
All information in the following tables is presented on a basis prepared in
accordance with U.S. generally accepted accounting principles (GAAP), unless
otherwise indicated. Amounts herein reflect certain adjustments as noted in the
Company's Form 8-K dated March 30, 2007 filed with the U.S. Securities and
Exchange Commission (SEC). Amounts have also been revised to reflect American
Express Bank Ltd. (AEB) activities as discontinued operations. In addition,
amounts herein reflect certain modifications made to the Company's reportable
operating segment disclosures as noted in the Company's Form 8-K dated April 19,
2007 filed with the SEC. Segment disclosures have also been revised to reflect
the Company's organizational changes that became effective July 1, 2007 and to
remove AEB from the Corporate & Other segment. See also pages 2-3 of the 2007
Third Quarter Earnings Supplement for a description of such adjustments.
(Preliminary)
American Express Company
----------------------------------------------------------------------
Consolidated Statements of Income
----------------------------------------------------------------------
(Millions)
Quarters Ended Percentage Nine Months Ended Percentage
September 30, Inc/(Dec) September 30, Inc/(Dec)
-------------- ---------- ----------------- ----------
2007 2006 2007 2006
------- ------ --------- -------
Revenues
Discount
revenue $3,659 $3,259 12 % $10,684 $ 9,520 12 %
Net card fees 522 462 13 1,506 1,515 (1)
Travel
commissions
and fees 484 427 13 1,412 1,328 6
Other
commissions
and fees 644 539 19 1,767 1,660 6
Securitization
income, net 392 384 2 1,181 1,142 3
Other 362 417 (13) 1,175 1,161 1
------- ------ --------- -------
Total 6,063 5,488 10 17,725 16,326 9
------- ------ --------- -------
Interest income
Cardmember
lending
finance
revenue 1,581 1,213 30 4,463 3,260 37
Other
(including
investment
certificates) 309 291 6 969 860 13
------- ------ --------- -------
Total 1,890 1,504 26 5,432 4,120 32
------- ------ --------- -------
Total
revenues 7,953 6,992 14 23,157 20,446 13
------- ------ --------- -------
Interest
expense
Cardmember
lending 444 318 40 1,260 841 50
Charge card
and other 564 409 38 1,530 1,126 36
------- ------ --------- -------
Total 1,008 727 39 2,790 1,967 42
------- ------ --------- -------
Revenues net of
interest
expense 6,945 6,265 11 20,367 18,479 10
------- ------ --------- -------
Expenses
Marketing,
promotion,
rewards and
cardmember
services 1,810 1,586 14 5,098 4,772 7
Human resources 1,366 1,227 11 4,001 3,679 9
Professional
services 539 562 (4) 1,637 1,621 1
Occupancy and
equipment 374 346 8 1,054 1,012 4
Communications 118 104 13 342 322 6
Other 339 342 (1) 980 993 (1)
------- ------ --------- -------
Total 4,546 4,167 9 13,112 12,399 6
------- ------ --------- -------
Provisions for
losses and
benefits
Charge card 279 257 9 721 658 10
Cardmember
lending 579 412 41 1,791 1,139 57
Other
(including
investment
certificates) 124 118 5 306 331 (8)
------- ------ --------- -------
Total 982 787 25 2,818 2,128 32
------- ------ --------- -------
Pretax income
from continuing
operations 1,417 1,311 8 4,437 3,952 12
Income tax
provision 343 377 (9) 1,228 1,236 (1)
------- ------ --------- -------
Income from
continuing
operations 1,074 934 15 3,209 2,716 18
(Loss) Income
from
discontinued
operations, net
of tax (7) 33 # (28) 69 #
------- ------ --------- -------
Net income $1,067 $ 967 10 $ 3,181 $ 2,785 14
======= ====== ========= =======
# - Denotes a variance of more than 100%.
(Preliminary)
American Express Company
----------------------------------------------------------------------
Condensed Consolidated Balance Sheets
----------------------------------------------------------------------
(Billions)
September 30, December 31,
2007 2006
------------- ------------
Assets
Cash and cash equivalents $ 8 $ 5
Accounts receivable 40 39
Investments 16 18
Loans 50 43
Other assets 10 9
Assets of discontinued operations 17 14
------------- ------------
Total assets $ 141 $ 128
============= ============
Liabilities and Shareholders' Equity
Short-term debt $ 15 $ 15
Long-term debt 54 43
Other liabilities 45 45
Liabilities of discontinued operations 16 14
------------- ------------
Total liabilities 130 117
------------- ------------
Shareholders' equity 11 11
------------- ------------
Total liabilities and shareholders'
equity $ 141 $ 128
============= ============
(Preliminary)
American Express Company
----------------------------------------------------------------------
Financial Summary
----------------------------------------------------------------------
(Millions)
Quarters Ended Percentage Nine Months Ended Percentage
September 30, Inc/(Dec) September 30, Inc/(Dec)
--------------- ---------- ----------------- ----------
2007 2006 2007 2006
------- ------- -------- --------
Revenues net of
interest
expense
---------------
U.S. Card
Services $3,589 $3,203 12 % $10,513 $ 9,271 13 %
International
Card
Services 1,114 952 17 3,142 2,939 7
Global
Commercial
Services 1,064 949 12 3,141 2,918 8
Global
Network &
Merchant
Services 980 841 17 2,823 2,428 16
------- ------- -------- --------
6,747 5,945 13 19,619 17,556 12
Corporate &
Other,
including
adjustments
and
eliminations 198 320 (38) 748 923 (19)
------- ------- -------- --------
CONSOLIDATED
REVENUES NET
OF INTEREST
EXPENSE $6,945 $6,265 11 $20,367 $18,479 10
======= ======= ======== ========
Pretax income
(loss) from
continuing
operations
---------------
U.S. Card
Services $ 912 $ 839 9 $ 2,770 $ 2,600 7
International
Card
Services 110 121 (9) 298 236 26
Global
Commercial
Services 187 157 19 600 549 9
Global
Network &
Merchant
Services 389 314 24 1,181 891 33
------- ------- -------- --------
1,598 1,431 12 4,849 4,276 13
Corporate &
Other (181) (120) 51 (412) (324) 27
------- ------- -------- --------
PRETAX INCOME
FROM
CONTINUING
OPERATIONS $1,417 $1,311 8 $ 4,437 $ 3,952 12
======= ======= ======== ========
Net income
(loss)
---------------
U.S. Card
Services $ 592 $ 558 6 $ 1,816 $ 1,679 8
International
Card
Services 140 106 32 359 244 47
Global
Commercial
Services 135 105 29 426 360 18
Global
Network &
Merchant
Services 266 212 25 768 578 33
------- ------- -------- --------
1,133 981 15 3,369 2,861 18
Corporate &
Other (59) (47) 26 (160) (145) 10
------- ------- -------- --------
Income from
continuing
operations 1,074 934 15 3,209 2,716 18
(Loss) Income
from
discontinued
operations,
net of tax (7) 33 # (28) 69 #
------- ------- -------- --------
NET INCOME $1,067 $ 967 10 $ 3,181 $ 2,785 14
======= ======= ======== ========
# - Denotes a variance of more than 100%.
(Preliminary)
American Express Company
----------------------------------------------------------------------
Financial Summary (continued)
----------------------------------------------------------------------
Quarters Ended Percentage Nine Months Ended Percentage
September 30, Inc/(Dec) September 30, Inc/(Dec)
--------------- ---------- ----------------- ----------
2007 2006 2007 2006
------- ------- -------- --------
EARNINGS PER
COMMON SHARE
BASIC
Income from
continuing
operations $ 0.92 $ 0.78 18 % $ 2.72 $ 2.23 22 %
(Loss) Income
from
discontinued
operations (0.01) 0.02 # $(0.02) 0.06 #
------- ------- -------- --------
Net income $ 0.91 $ 0.80 14 % $ 2.70 $ 2.29 18 %
======= ======= ======== ========
Average
common
shares
outstanding
(millions) 1,170 1,202 (3)% 1,179 1,217 (3)%
======= ======= ======== ========
DILUTED
Income from
continuing
operations $ 0.90 $ 0.76 18 % $ 2.67 $ 2.19 22 %
(Loss) Income
from
discontinued
operations - 0.03 # (0.02) 0.05 #
------- ------- -------- --------
Net income $ 0.90 $ 0.79 14 % $ 2.65 $ 2.24 18 %
======= ======= ======== ========
Average
common
shares
outstanding
(millions) 1,192 1,227 (3)% 1,202 1,242 (3)%
======= ======= ======== ========
Cash dividends
declared per
common share $ 0.15 $ 0.15 - % $ 0.45 $ 0.42 7 %
======= ======= ======== ========
Selected Statistical Information
-----------------------------------
Quarters Ended Percentage Nine Months Ended Percentage
September 30, Inc/(Dec) September 30, Inc/(Dec)
--------------- ---------- ----------------- ----------
2007 2006 2007 2006
------- ------- -------- --------
Return on
average equity
(A) 38.2% 33.6% 38.2% 33.6%
Common shares
outstanding
(millions) 1,169 1,204 (3)% 1,169 1,204 (3)%
Book value per
common share $ 9.32 $ 8.93 4 % $ 9.32 $ 8.93 4 %
Shareholders'
equity
(billions) $ 10.9 $ 10.8 1 % $ 10.9 $ 10.8 1 %
# - Denotes a variance of more than 100%.
(A) Computed on a trailing 12-month basis using net income over
average total shareholders' equity (including discontinued
operations) as included in the Consolidated Financial Statements
prepared in accordance with GAAP.
To view additional business segment financials go to:
http://ir.americanexpress.com
American Express Company
Media:
Joanna Lambert, 212-640-9668
joanna.g.lambert@aexp.com
Michael O'Neill, 212-640-5951
mike.o'neill@aexp.com
or
Investors/Analysts:
Alex Hopwood, 212-640-5495
alex.w.hopwood@aexp.com
Ron Stovall, 212-640-5574
ronald.stovall@aexp.com
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