American Express Company
American Express Company (NYSE: AXP) today reported first-quarter income from
continuing operations of $974 million, down 11 percent from $1.1 billion a year
ago. Diluted earnings per share from continuing operations were $0.84, down 7
percent from $0.90 a year ago.
(Millions, except per share amounts)
Quarters Ended Percentage
March 31, Inc/(Dec)
----------------- ----------
2008 2007
-------- --------
Revenues net of interest expense $ 7,186 $ 6,484 11%
Income From Continuing Operations $ 974 $ 1,095 (11%)
Income (loss) From Discontinued
Operations $ 17 $ (38) #
Net Income $ 991 $ 1,057 (6%)
Earnings Per Common Share - Basic:
Income From Continuing Operations $ 0.84 $ 0.92 (9%)
Income (loss) From Discontinued
Operations $ 0.02 $ (0.03) #
Net Income $ 0.86 $ 0.89 (3%)
Earnings Per Common Share - Diluted:
Income From Continuing Operations $ 0.84 $ 0.90 (7%)
Income (loss) From Discontinued
Operations $ 0.01 $ (0.03) #
Net Income $ 0.85 $ 0.87 (2%)
Average Common Shares Outstanding
Basic 1,153 1,187 (3%)
Diluted 1,163 1,210 (4%)
Return on Average Equity* 35.9% 36.6%
----------------------------------------------------------------------
* 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%.
Net income totaled $991 million for the quarter, down 6 percent from a year ago.
On a per-share basis, net income was $0.85, down 2 percent from $0.87 a year
ago.
Consolidated revenues net of interest expense rose 11 percent to $7.2 billion,
up from $6.5 billion a year ago.
Consolidated expenses totaled $4.6 billion, up 14 percent from $4.0 billion a
year ago.
The Company's return on equity (ROE) was 35.9 percent, down from 36.6 percent a
year ago.
In the year-ago quarter, results from continuing operations included an $80
million ($50 million after-tax) gain related to a new accounting standard for
retained interest in securitized loans and a $63 million ($39 million after-tax)
gain from amendments to the Company's U.S. pension plans. The year-ago quarter
also included $32 million ($21 million after-tax) of reengineering costs
compared to $10 million ($7 million after-tax) in the current period.
"We delivered stronger than expected revenue growth this quarter, despite a weak
and uncertain U.S. economy," said Kenneth I. Chenault, chairman and chief
executive. "Business volume growth was in the top tier of the industry, as we
realized continuing returns on our multi-year investments and benefited from a
diverse consumer and business-to-business portfolio. Cardmember spending rose 14
percent, driven by strength in the international markets, among bank partners
and in the corporate sector.
"We continued to invest in longer-term opportunities at a time when some
traditional competitors have been constrained by problems elsewhere in their
operations. Marketing and related spending was up 20 percent, with a focus on
affluent U.S. consumers and the international markets. Investments in the
business-to-business sector included the recently completed acquisition of
General Electric's corporate card unit.
"Loan growth slowed from the rate of recent quarters, reflecting in part
credit-related actions such as targeted line reductions. Similarly, loan loss
reserves rose in light of the increase in delinquencies and write-offs,
particularly in those areas hit hardest by the U.S. housing market. In managing
our risk profile, we are aiming to balance the challenges of what continues to
be a difficult environment against longer-term growth opportunities in the
payments sector.
"While we continue to be cautious about the U.S. economy, we are encouraged by
our performance internationally. And, based on the breadth and flexibility of
our business model, we remain on track for the 4-6 percent EPS growth that we
indicated at the start of the year, barring significant deterioration in the
economic environment."
Discontinued operations
Discontinued operations for the first quarter reflected income of $17 million,
including an $11 million after-tax gain related to the sale of American Express
Bank Ltd. (AEB). The year-ago period reflected a loss of $38 million which
included a $60 million (pretax and after-tax) reserve established for regulatory
and legal exposure at American Express Bank International (a subsidiary of AEB).
Segment Results
U.S. Card Services reported first-quarter net income of $523 million, down 19
percent from $644 million a year ago.
Revenues net of interest expense for the first quarter increased 11 percent to
$3.7 billion, reflecting higher spending and borrowing by consumers and small
businesses. This was partially offset by last year's gain related to the
adoption of a new accounting standard, which resulted in higher securitization
income, net, in 2007.
Total expenses increased 17 percent. Marketing, promotion, rewards and
Cardmember services expenses increased 21 percent from the year-ago period
reflecting increased investments in advertising and promotion, as well as higher
rewards costs. Human resources and other operating expenses increased 12 percent
from the year-ago period when these expenses included a benefit related to the
U.S. pension plan curtailment of $36 million ($22 million after-tax), partially
offset by reengineering charges of $14 million ($9 million after-tax) in the
prior year.
Provisions for losses increased 52 percent to $881 million, up from $581 million
a year ago, reflecting higher write-off and delinquency rates as well as growth
in loans outstanding and business volumes.
The 2008 results reflect a lower tax rate that benefited from the resolution of
certain tax items from previous years.
International Card Services reported first-quarter net income of $133 million,
up 30 percent from $102 million a year ago.
Revenues net of interest expense increased 22 percent to $1.2 billion,
reflecting higher Cardmember spending and borrowing.
Total expenses increased 21 percent. Marketing, promotion, rewards and
Cardmember services expenses increased 27 percent. Human resources and other
operating expenses increased 17 percent from year-ago levels due in part to
increased employee levels.
Provisions for losses increased 24 percent to $229 million, up from $184 million
a year ago, reflecting growth in the loan portfolio and business volumes.
Global Commercial Services reported first-quarter net income of $151 million, up
17 percent from $129 million a year ago.
Revenues net of interest expense increased 15 percent to $1.1 billion,
reflecting higher spending by corporate Cardmembers and increased travel
commissions.
Total expenses increased 12 percent. Human resources and other operating
expenses increased 13 percent from the year-ago period when these expenses
included a benefit related to the U.S. pension plan curtailment of $19 million
($12 million after-tax) partially offset by reengineering charges of $4 million
($3 million after-tax).
Provisions for losses increased to $62 million, up from $30 million a year ago,
reflecting higher write-offs and increased business volumes.
Global Network & Merchant Services reported first-quarter net income of $223
million, down 6 percent from $236 million a year ago.
Revenues net of interest expense for the first quarter increased 14 percent to
$1.0 billion. The increase reflected continued strong growth in merchant-related
revenue, primarily from higher company-wide billed business.
Spending on Global Network Services cards increased 50 percent from year-ago
levels, reflecting continued growth in spending on cards issued by bank
partners. Cards-in-force issued by bank partners increased 33 percent.
Total expenses increased 21 percent, reflecting higher human resources costs
driven in part by an expansion of the merchant sales force and higher litigation
related expenses. Year-ago results included a benefit related to the pension
plan curtailment of $5 million ($3 million after-tax).
Provision for losses increased $56 million due to greater merchant-related
provisions in the first quarter of 2008 compared to a year ago, which reflected
a Delta Air Lines-related provision benefit as it had then recently emerged from
bankruptcy.
Corporate and Other reported first-quarter net loss of $56 million, compared
with net loss of $16 million a year ago. The net loss reflects in part the
impact of the following items:
-- a charge of $104 million ($68 million after-tax) related to losses
within the trading securities portfolio of American Express
International Deposit Company,
-- a charge of $29 million ($19 million after-tax) related to AEB
operations that were not sold, which included $7 million ($5 million
after-tax) of the previously mentioned reengineering costs, partially
offset by
-- the recognition of $70 million ($43 million after-tax) for the
previously announced Visa settlement.
American Express Company is a leading global payments and travel company founded
in 1850. For more information, visit www.americanexpress.com.
Note: The 2008 First 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 first-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 forward-looking statements, which address the Company's
expected business and financial performance, among other matters, contain words
such as "believe," "expect," "anticipate," "optimistic," "intend," "plan,"
"aim," "will," "may," "should," "could," "would," "likely," and similar
expressions. 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: 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 economic environment, and
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 Company's ability to manage credit risk
related to consumer debt, business loans, merchants and other credit trends,
which will depend in part on the economic environment, the rates of bankruptcies
and unemployment, which can affect spending on card products, debt payments by
individual and corporate customers and businesses that accept the Company's card
products, and on the effectiveness of the Company's credit models; the impact of
the Company's efforts to deal with delinquent Cardmembers in the current
challenging economic environment, which may affect payment patterns of
Cardmembers, the Company's near-term write-off rates, including in the second
quarter of 2008, and the volumes of the Company's loan balances in 2008;
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 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 to be spent by the Company on marketing,
promotion, rewards and Cardmember services based on management's assessment of
competitive opportunities and other factors affecting its judgment; 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;
fluctuations in foreign currency exchange rates; 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; 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; trends in
travel and entertainment spending and the overall level of consumer confidence;
the uncertainties associated with acquisitions, including, among others, the
failure to realize anticipated business retention, growth and cost savings, as
well as the ability to effectively integrate the acquired business into the
Company's existing operations; the underlying assumptions and expectations
related to the sale of the American Express Bank Ltd. businesses and the
transaction's impact on the Company's earnings proving to be inaccurate or
unrealized; 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; bankruptcies, restructurings,
consolidations or similar events (including, among others, the proposed Delta
Northwest merger) 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; 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, 2007,
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.
(Preliminary)
American Express Company
----------------------------------------------------------------------
Consolidated Statements of Income
----------------------------------------------------------------------
(Millions)
Quarters Ended
March 31,
------------------- Percentage
2008 2007 Inc/(Dec)
--------- --------- ----------
Revenues
Discount revenue $ 3,718 $ 3,355 11 %
Net card fees 567 484 17
Travel commissions and fees 494 437 13
Other commissions and fees 622 536 16
Securitization income, net 444 457 (3)
Other 356 387 (8)
--------- ---------
Total 6,201 5,656 10
--------- ---------
Interest income
Cardmember lending finance revenue 1,625 1,368 19
Other 279 303 (8)
--------- ---------
Total 1,904 1,671 14
--------- ---------
Total revenues 8,105 7,327 11
--------- ---------
Interest expense
Cardmember lending 417 385 8
Charge card and other 502 458 10
--------- ---------
Total 919 843 9
--------- ---------
Revenues net of interest expense 7,186 6,484 11
--------- ---------
Expenses
Marketing, promotion, rewards and
cardmember services 1,756 1,462 20
Human resources 1,470 1,301 13
Professional services 551 518 6
Occupancy and equipment 375 328 14
Communications 115 112 3
Other, net 296 293 1
--------- ---------
Total 4,563 4,014 14
--------- ---------
Provisions for losses and benefits
Charge card 345 209 65
Cardmember lending 809 574 41
Other (including investment
certificates) 115 76 51
--------- ---------
Total 1,269 859 48
--------- ---------
Pretax income from continuing operations 1,354 1,611 (16)
Income tax provision 380 516 (26)
--------- ---------
Income from continuing operations 974 1,095 (11)
Income (Loss) from discontinued
operations, net of tax 17 (38) #
--------- ---------
Net income $ 991 $ 1,057 (6)
========= =========
# - Denotes a variance of more than 100%.
(Preliminary)
American Express Company
----------------------------------------------------------------------
Condensed Consolidated Balance Sheets
----------------------------------------------------------------------
(Billions)
March 31, December 31,
2008 2007
------------ ------------
Assets
Cash and cash equivalents $ 19 $ 12
Accounts receivable 41 42
Investments 14 16
Loans 48 53
Other assets 13 10
Assets of discontinued operations - 17
------------ ------------
Total assets $ 135 $ 150
============ ============
Liabilities and Shareholders' Equity
Short-term debt $ 19 $ 18
Long-term debt 56 55
Other liabilities 48 50
Liabilities of discontinued operations - 16
------------ ------------
Total liabilities 123 139
------------ ------------
Shareholders' equity 12 11
------------ ------------
Total liabilities and shareholders'
equity $ 135 $ 150
============ ============
(Preliminary)
American Express Company
----------------------------------------------------------------------
Financial Summary
----------------------------------------------------------------------
(Millions)
Quarters Ended
March 31,
----------------- Percentage
2008 2007 Inc/(Dec)
-------- -------- ----------
Revenues net of interest expense
------------------------------------------
U.S. Card Services $ 3,722 $ 3,364 11 %
International Card Services 1,195 979 22
Global Commercial Services 1,144 994 15
Global Network & Merchant Services 1,003 877 14
-------- --------
7,064 6,214 14
Corporate & Other,
including adjustments and eliminations 122 270 (55)
-------- --------
CONSOLIDATED REVENUES NET OF INTEREST
EXPENSE $ 7,186 $ 6,484 11
======== ========
Pretax income (loss) from continuing
operations
------------------------------------------
U.S. Card Services $ 791 $ 1,031 (23)
International Card Services 117 96 22
Global Commercial Services 218 195 12
Global Network & Merchant Services 335 374 (10)
-------- --------
1,461 1,696 (14)
Corporate & Other (107) (85) 26
-------- --------
PRETAX INCOME FROM CONTINUING OPERATIONS $ 1,354 $ 1,611 (16)
======== ========
Net income (loss)
------------------------------------------
U.S. Card Services $ 523 $ 644 (19)
International Card Services 133 102 30
Global Commercial Services 151 129 17
Global Network & Merchant Services 223 236 (6)
-------- --------
1,030 1,111 (7)
Corporate & Other (56) (16) #
-------- --------
Income from continuing operations 974 1,095 (11)
Income (Loss) from discontinued
operations, net of tax 17 (38) #
-------- --------
NET INCOME $ 991 $ 1,057 (6)
======== ========
# - Denotes a variance of more than 100%.
(Preliminary)
American Express Company
----------------------------------------------------------------------
Financial Summary (continued)
----------------------------------------------------------------------
Quarters Ended
March 31,
----------------- Percentage
2008 2007 Inc/(Dec)
-------- -------- ----------
EARNINGS PER COMMON SHARE
BASIC
Income from continuing operations $ 0.84 $ 0.92 (9)%
Income (Loss) from discontinued
operations 0.02 (0.03) #
-------- --------
Net income $ 0.86 $ 0.89 (3)%
======== ========
Average common shares outstanding
(millions) 1,153 1,187 (3)%
======== ========
DILUTED
Income from continuing operations $ 0.84 $ 0.90 (7)%
Income (Loss) from discontinued
operations 0.01 (0.03) #
-------- --------
Net income $ 0.85 $ 0.87 (2)%
======== ========
Average common shares outstanding
(millions) 1,163 1,210 (4)%
======== ========
Cash dividends declared per common share $ 0.18 $ 0.15 20 %
======== ========
Selected Statistical Information
----------------------------------------------------------------------
Quarters Ended
March 31,
----------------- Percentage
2008 2007 Inc/(Dec)
-------- -------- ----------
Return on average equity (A) 35.9% 36.6%
Common shares outstanding (millions) 1,158 1,188 (3)%
Book value per common share $ 9.94 $ 8.83 13 %
Shareholders' equity (billions) $ 11.5 $ 10.5 10 %
# - 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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