19 Jul

Why American Express’s Q2 Earnings Rose

WRITTEN BY Rekha Khandelwal, CFA

American Express (AXP) reported its second-quarter earnings results on Friday before the market opened. The company’s EPS of $2.07 beat analysts’ consensus estimate of $2.04. American Express’s EPS rose 13% YoY (year-over-year). Its revenue also rose 8% YoY. American Express’s revenue growth for the quarter was driven by higher spending by its cardholders, higher loans, and card fees.

Why American Express’s Q2 Earnings Rose

American Express’s earnings drivers

“We continued the broad-based momentum throughout our business with the eighth straight quarter of FX-adjusted revenue growth at 8 percent or better,” noted Steve Squeri, chair and CEO of AXP.

American Express’s cardholder spending, adjusted for exchange rate changes, rose 7% during the quarter. Higher spending in the consumer segment drove this growth. This growth in spending was impressive considering it exceeded the level of overall economic growth. In addition, total loans grew 11% YoY. Notably, 60% of the increase came from American Express’s existing customers.

Squeri said, “We continued to enhance the benefits and services we offer and that helped us add 2.9 million new proprietary cards this quarter. Nearly 70 percent of those new consumer cards we acquired this quarter carry an annual fee – a strong sign that Card Members appreciate and are willing to pay for premium value.”

Higher expenses

Though American Express managed to raise cardholder spending, this spending was associated with higher rewards expenses and customer engagement costs. The shift resulted in a 4% YoY fall in the company’s Global Consumer Services segment’s net income even though the segment’s revenue rose. In comparison, the Global Commercial Services segment reported a 14% YoY rise in net income. American Express’s Global Merchant and Network Services segment’s net income rose 16% YoY.

2019 guidance

American Express has reaffirmed its financial guidance for 2019. The company expects revenue growth of 8%–10% this year. In addition, its adjusted EPS guidance range for 2019 is $7.85–$8.35.

Stock performance

American Express stock, which is trading close to its all-time high, was down around 0.4% in premarket trading on Friday. The stock has seen upward price target revisions in July from analysts at JPMorgan, Citigroup, and Credit Suisse. American Express stock has risen approximately 35% in 2019 compared to Visa’s (V) rise of about 37% and Mastercard’s (MA) rise of 47%. Visa is scheduled to report its earnings on July 23, and MasterCard is set to report on July 30.

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