Highlights of Lone Pine Capital's positions in 1Q 2014

Part 8
Highlights of Lone Pine Capital's positions in 1Q 2014 (Part 8 of 8)

Lone Pine Capital sells its stake in American Express in 1Q 2014

Lone Pine Capital and American Express

Lone Pine initiated new positions in Actavis PLC (ACT), LPL Financial Holdings (LPLA), Adobe Systems Inc. (ADBE), Equinix Inc. (EQIX), and Jazz Pharmaceuticals PLC (JAZZ). Top positions the fund sold were Dollar Tree Inc. (DLTR) and American Express Co. (AXP).

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Lone Pine shed its position in American Express Co. (AXP) last quarter, which had accounted for 2.37% of the fund’s 4Q 2013 portfolio.

American Express Co. is a global services company whose principal products and services are charge and credit payment card products and travel-related services offered to consumers and businesses around the world. The company also focuses on generating alternative sources of revenue globally in areas such as online and mobile payments and fee-based services. The company has four reportable operating segments: U.S. Card Services (USCS), International Card Services (ICS), Global Commercial Services (GCS), and Global Network and Merchant Services (GNMS).

American Express misses revenue estimates

Shares fell after American Express topped estimates for 1Q 2014 earnings, but revenue came in below consensus. Profit rose 12% to $1.43 billion or $1.33 per share from $1.28 billion or $1.15 per share last year. Revenue grew 4% to $8.20 billion from $7.88 billion last year. The company said in its 10Q, “Our results for the first quarter of 2014 reflect increased spending by Card Members, continued low write-off rates and lower operating expenses while our strong balance sheet allowed us to return a substantial amount of capital to our shareholders.”

A slowdown in consumer spending

The company said, “Billed business grew 6% over the prior year, with higher volumes in the U.S. and internationally. Billed business and revenue growth remained solid but slowed modestly from the fourth quarter of 2013. In addition, the stronger U.S. dollar continued to put downward pressure on our billed business and revenue growth.” Management added, “While consumers remain cautious about taking on additional debt, we continued to see a modest increase in Card Member loan balances.” A Reuters report said the company exercised more control on its expenses to offset slower growth in consumer spending due to the severe winter weather during the quarter.

Provisions for losses increased $69 million or 17% compared to the corresponding period in the prior year. Charge card provisions for losses increased $61 million or 40%, driven by higher average Card Member receivable balances resulting in higher net write-offs and reserve builds.

In terms of segments, U.S. Card Services net income increased 9% to $876 million, while international card services saw net income fall 11% to $159 million. Global Commercial Services, which offer global corporate payment and travel-related products and services to large and mid-sized companies, reported first-quarter net income of $184 million, down 4% from $191 million a year ago. Global Network & Merchant Services (GNMS) posted a 19% increase in net income to $443 million. GNMS operates a global payments network that processes and settles proprietary and non-proprietary card transactions.

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American Express looks to increase dividends and buybacks

American Express said that it performed well in the Federal Reserve’s annual stress test. It added, “The results provide us with the flexibility to move forward with plans to increase the quarterly dividend by 13% and repurchase up to $4.4 billion of shares this year and an additional $1.0 billion during the first quarter of 2015. Our plan remains focused on balancing three priorities: supporting growth strategies, maintaining strong capital ratios and returning a substantial level of capital to our shareholders.”

Management added that the credit card company has “launched new initiatives to expand card acceptance among smaller merchants, capture a greater share of U.S. consumers’ everyday spending and extend our loyalty coalition business into Italy. These initiatives are aimed at helping us reach additional segments of the market.”

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