American Express Stock Dips Despite Q3 Revenue Beat

American Express Company (AXP), the New York-based financial services company, released its third-quarter earnings on Friday. Even other banks like US Bancorp (USB) and Morgan Stanley (MS) released their earnings report for the third quarter of 2019 this week. American Express stock gained momentum in the pre-market phase, but it started losing value after the market opened. During the day, Amex stock plunged by just less than 2% and closed at $116.76.

American Express earnings highlights

In the American Express third-quarter earnings conference call, CEO Stephen Squeri talked about the consistent performance of the company. Amex revenues for the quarter grew by 9%, after adjusting for foreign currency fluctuations.

Even the earnings per share grew by 11% compared to the same period one year ago. Amex revenues have been consistently driven by consumer spending, loans, and fees. Based on these factors, the financial services provider has booked a quarterly revenue growth in excess of 8% consecutively since the last nine quarters.

Also, Squeri said, “The trends we saw in the business this quarter continue to be consistent with an economy that continues to grow, albeit at a more modest pace than last year…”

Consistent growth in revenues and net income

American Express’s net revenues for the third quarter of 2019 were $10.99 billion, beating the consensus estimate of $10.94 billion. Revenues from card fees grew by 19% YoY (year-over-year) and crossed the $1 billion threshold. In comparison to last year’s third quarter, the net revenues grew by 8%. Billings from the proprietory card segment was up by 7% after forex adjustment.

Net income for the quarter rose by 6% compared to the quarter that ended in September 2018. The reported net income for the period was around $1.75 billion against $1.65 billion for the same quarter last year. Quarterly diluted earnings per share after adjustments was up by 11% on a YoY basis. The third-quarter 2019 diluted EPS (earnings per share) was $2.08 against $1.88 for the third quarter of 2018. Amex’s average EPS estimate for the third quarter of 2019 was $2.03.

Rises in operating expenses

American Express consolidated expenses for the reported quarter were $7.8 billion. This is an increase of 9% compared to $7.2 billion in the third quarter of the previous year. Some of the factors leading to growing expenses are customer engagement costs, higher rewards to customers, and higher cobranded investments. Even the operating expenses for the current quarter was higher by 5%. Compared to a year ago, salaries and employee benefits were higher for the third quarter of 2019.

American Express Q4 earnings guidance

Also, American Express has released a forward-looking statement along with the earnings results. These statements describe any potential deviations from the fourth-quarter 2019 expectations. These statements suggest that the business could be directly affected by federal policies. Amex gets a lot of its revenues from consumer spending. However, in case of an economic slowdown within the US or internationally, American Express could be severely affected.

In the event of a slowdown, consumer spending could drop. This could lead to a reduction in the revolving balances. This could lead to a loss of revenues and affect yields on card loans. If there is a slowdown in international markets, and if the dollar grew stronger than expected, then the net revenues could have a declining effect.

During the call, one of the spokespeople said that Amex kept its 2019 EPS guidance range of $7.85 to $8.35. Also, it expects the fourth-quarter revenue to grow 8% to 10% YoY.