This is a summary of the third quarter fiscal 2008 earnings call conducted by American Express Company (AXP) on October 20, 2008.
Management:
–
CEO: Kenneth Chenault
–
EVP & CFO: Daniel Henry
–
Sr. VP IR: Ronald Stovall
Key Investor Issues:
- Net income was $815 million, or 70 cents a share, versus $1.07 billion, or 90 cents a share, a year earlier. Income from continuing operations was $861 million, or 74 cents a share.
- Consolidated revenues, net of interest expense, increased 3% to $7.2 billion, while total expenses climbed 4% to $4.7 billion
- In the US card services business net write-offs rose to 5.9% of loans, up from 3% a year ago.
- Consolidated provisions for losses totaled $1.4 billion, up 51% from a year ago.
Third Quarter Highlights:
Revenues on a GAAP basis grew 3%. On a managed basis they grew 9%. Diluted EPS of $0.74 was 21% below 2007 as a result of a slowing in spend growth as well as higher credit losses.
ROE remains very healthy at 27.8%.
This performance is below the on average and over time financial targets and will continue to be as long as the economy remains weak.
First AEIDC is an investment subsidiary of AEB which American Express closed the sale in the first quarter of this year and agreed to retain this sub until September of 2009. Now American Express is going to move this from continuing operations to discontinued operations. AEIDC has about $660 million of assets; cash represents $340 million of that total.
Despite the impact of the slowing economy on the results, through earnings, American Express retained or increased capital by over $600 million in the third quarter and by almost $2 billion year-to-date.
The company did not repurchase shares in the third quarter and does not plan to repurchase shares as long as the economy remains weak. Instead, American Express will continue to build capital.
Billed business continues to grow faster than the competition at 8%, although it has slowed.
- In the first quarter, the billed business grew by 14% and in the second quarter by 12%.
- During the third quarter while the average was 8% growth, September grew at 5% and American Express has seen a further slowing in the first 15 days of October.
Business was stronger in international consumer, global corporate card, and G&S, although the company did see some slowing in the third quarter in each of these businesses. In the quarter, American Express added two million net new cards since the second quarter and 7.4 million net new cards since last year.
In the quarter, American Express had 4% growth in proprietary cards and 25% in network cards.
Managed loans had growth of 5%. This is about the same as competitors. This is a reflection of the economy, slowing spend, and the credit actions. Travel sales have slowed significantly from last quarter.
GAAP revenue grew at 3% but on a managed basis, it grew 9%.
Discount revenue grew 5% based on the 8% billed business growth the company saw. Net card fees reflect proprietary card growth and higher average fees per card. Net interest and securitization income decreased 7%.
The decline was driven by lower securitization income due to higher credit losses and a write-down in the OI strip. Net interest income increased 13% as higher net interest yields more then offset the lower owned loan balances on the balance sheet.
American Express will see pressure on yield in the fourth quarter due to current LIBOR levels, which are way off historic relationships to Fed funds.
Historically LIBOR has been 20 to 40 basis points above Fed funds. In early October, they were nearly 300 basis points above Fed funds and peaked at 4.59%. This is the one-month LIBOR rate.
Credit operations is limiting or stopping spending on customers with high probability of default. The company continues to selectively invest in US consumer and small business and grew cards in force 4%. American Express securitized about 35% of loans as of the third quarter of 2007.
