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AXP’s Global Commercial Services Segment Sees a Steady Top Line

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Consistent growth, higher spending

American Express’s (AXP) Global Commercial Services (or GCS) segment formed 31% of the company’s total revenue in 4Q16, in line with the previous quarter. 

In 4Q16, the segment reported revenue of $2.49 billion, compared to $2.47 billion in 4Q15, representing higher cardmember spending. The prior year’s quarter’s results included Costco Wholesale’s (COST) contributions, partially offset by a rise in spending and net card fees.

Under its GCS segment, Amex provides global corporate payment services, expense management, and travel services, mainly through its payment and business travel segments.

Net income for the segment fell 22% to $382 million in 4Q16, compared to $487 million in 4Q15. The segment’s provision for losses totaled $171 million, a rise of 12% compared to $153 million in 4Q15, reflecting higher lending net write-offs.

Amex registered an operating profit margin of 74% in 2016. Its competitors in the industry posted the following margins:

  • MasterCard (MA): 54%
  • Visa (V): 60%
  • Discover Financial Services (DFS): 43.6%

Together, these companies make up 2.5% of the Technology Select Sector SPDR ETF (XLK).

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Expenses rise on initiatives

American Express’s GCS segment posted total expenses of $1.8 billion in 4Q16, compared to $1.6 billion in 4Q15. The segment’s expenses rose sequentially, reflecting a bigger push for more business toward the year’s end. Amex has been spending heavily on initiatives and reward expenses to boost spending and increase its clientele. The GCS segment’s effective tax rate fell to 30% in 4Q16, compared to 36% in 4Q15, driven mainly by the impact of recurring permanent tax benefits on lower pretax income.

In the next article, we’ll study Amex’s Global Network and Merchant Services segment.

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