Raising the bill internationally
American Express (AXP) has been looking to expand its business internationally amid high competition in the domestic markets. Amex’s International Card Services division accounts for just 17%. However, Amex is focusing on expanding its portfolio internationally in Europe as well as in emerging markets. Total revenues net of interest expenses in the division expanded by 6% to $1.4 billion in the June quarter compared to $1.3 billion in the prior-year quarter.
On a constant dollar basis, the division reported 11% growth in revenues, mainly due to higher bank partnership revenues and card member spending. International revenues of the US firms have been impacted by a strong dollar. The dollar is expected to be strong as the Fed mulls another rate hike in the last quarter of 2016.
The US companies’ revenues have fallen in dollar terms due to the strong currency appreciation. The division posted net income of $228 million in the June quarter as compared to $193 million in the prior-year quarter.
American Express reported net profits of $5.2 billion in its last fiscal year. The company’s peers in the industry had the following net profits in the last fiscal year:
- Visa (V): $5.4 billion
- Discover Financial Services (DFS): $2.3 billion
- MasterCard (MA): $3.6 billion
Together, these companies form 1.9% of the iShares Core S&P 500 ETF (IVV).
Expenses benefited from strong dollar
American Express’s International division saw a rise in total expenditures of 4% to $1.1 billion in the June quarter as compared to a 6% rise in revenues. On a constant dollar basis, expenses rose 7% from the previous year as against 11% growth in revenues. The current quarter’s expenses rose on higher investment spending, growth initiatives, and a portion of the restructuring charge.
The division’s card billed business rose 5% in the June quarter to $84.2 billion largely due to higher spending. Its cards-in-force grew by 5% to $61.2 million compared to $58.5 million in 2Q15.
Next, let’s study American Express’s Global Commercial Services.