American Express Earnings Dogged by Currency Headwinds

The company expects full-year 2015 earnings will be flat to modestly down year-over-year with the headwinds that it is facing. There are consensus estimates for the 2015 full year of $5.48 in EPS and $34.34 billion in revenue.

American Express plans to ramp up investments to help offset the impact from ending its relationship with Costco in the U.S. next year.

In the first quarter, the Federal Reserve conducted its annual stress tests on systemically important financial institutions. American Express passed and as a result it gained the flexibility to increase its quarterly dividend by 12% to $0.29 per share and repurchase up to $6.6 billion of common shares through the second quarter of 2016.

In terms of its segments for the first quarter, compared to the same period last year:

• U.S. Card Services reported net income of $934 million, up 7%.
• International Card Services reported net income of $134 million, down 16%. The decline reflected the impact of the stronger U.S. dollar.
• Global Commercial Services reported net income of $180 million, down 2%. This decline also reflected the impact of the stronger U.S. dollar.
• Global Network & Merchant Services reported net income of $444 million, flat from a year ago. Results were negatively impacted by the strong U.S. dollar.
• Corporate and Other reported first-quarter net loss of $167 million, compared to the net loss of $230 million.

Kenneth Chenault, Chairman and CEO of American Express, commented on the company’s performance in the first quarter:

Underlying performance reflected some familiar themes: higher Card Member spending (3 percent globally, 7 percent on an FX adjusted basis); a modest increase in loans; credit metrics near their historic lows; disciplined cost controls; and a strong balance sheet that allows us to return substantial amounts of capital to shareholders. These results came against the negative impact of a sharply stronger U.S. dollar, an uneven global economy, and the long-term renewal of several cobrand relationships that provide us with lower initial economics than the prior agreements. We also felt the impact from ending our relationship with Costco Canada, which expired at year end.

Shares of American Express closed Thursday up 1.5% at $80.91. Following the release of the earnings report, shares were initially down 0.8% at $80.30 in after-hours trading. The stock has a consensus analyst price target of $86.76 and a 52-week trading range of $77.12 to $96.24.

ALSO READ: The Happiest (and Most Miserable) Cities in America