Banking, finance, and taxes

Shocking American Express Earnings Without Costco

Chris Lange

Published: October 19, 2016 4:32 pm

Last Updated: January 13, 2020 2:10 am

American Express Co. (NYSE: AXP) reported third-quarter financial results after markets closed on Wednesday. Many expected Amex to be hurting this quarter because this would by the first period that the company reported without its Costco portfolio. However, Amex shocked investors and analysts alike blowing the earnings estimate out of the water.

The company posted $1.20 in earnings per share (EPS) on $7.77 billion in revenue, versus consensus estimates from Thomson Reuters that called for $0.96 in EPS and $7.72 billion in revenue. The same period of last year reportedly had $1.24 in EPS and $8.19 billion in revenue.

As for 2016 full year guidance, Amex expects EPS in the range of $5.90 to $6.00, which compares to the consensus estimate of $5.51 per share.

In terms of its business segments the company reported:

• U.S. Consumer Services reported net income of $401 million, down 26% from a year ago. Total revenues net of interest expense decreased 13% to $2.9 billion, from $3.3 billion.
• International Consumer and Network Services reported net income of $155 million, up 1% from $154 million a year ago. Total revenues net of interest expense were $1.4 billion, up 5% (up 7% FX-adjusted) from $1.3 billion.
• Global Commercial Services reported net income of $466 million, unchanged from last year. The year-ago period included Costco-related revenues, provisions and expenses. Total revenues net of interest expense were $2.4 billion, unchanged as well.
• Global Merchant Services reported net income of $359 million, down 10% from $397 million a year ago. The year-ago period included Costco-related revenues. Total revenues net of interest expense were $1.1 billion, down 6% from $1.2 billion.

Kenneth I. Chenault, board chair and chief executive, commented:

Strong operating discipline and credit quality helped to keep us ahead of the 2016 financial outlook that we first provided at the beginning of the year. While reported revenues were down 5 percent, we saw underlying revenue growth of 5 percent after adjusting for the absence of Costco-related business this quarter – slightly faster than comparable second-quarter levels. Adjusted billed business was up 7 percent, adjusted loan growth remained healthy and net card fees rose 10 percent, reflecting strong performance across our premium card portfolios.

Shares closed Wednesday up 2% at $61.25, with a consensus analyst price target of $67.18 and a 52-week trading range of $50.27 to $77.61. Following the release of the earnings report, the stock was up 4% at $63.75 in the after-hours trading session.