American Express: Cardmembers Keep Spending, EPS Up 10%
The first quarter of 2012 was a friendly one for American Express, which reported better than expected results for the January-March period Wednesday.
American Express booked net income of $1.3 billion, up from $1.2 billion a year ago, and earnings per share of $1.07 that were up 10% from 2011 and better than the Street’s consensus call for $1.00
Revenue, net of interest expense, was up 8% to $7.6 billion, in line with estimates and reflecting “strong cardmember spending and higher net interest income driven by moderate growth in the loan portfolio,” according to the Dow Jones industrial average component.
Chairman and CEO Ken Chenault said the increased spending and tight management of expenses led to the record first-quarter results.
“Spending on the American Express network rose 12 percent, remaining strong throughout the quarter, both in the U.S. and internationally. Credit quality continues to be among the best we have ever experienced, and our lending portfolio continued to grow at moderate levels,” he said.
American Express raised its quarterly dividend 11% to 20 cents per share, and is moving forward with up to $4 billion of share repurchases in 2012 and another $1 billion through the first quarter of 2013 after easily passing the Federal Reserve’s stress test on the largest U.S. financial firms.
As to the global breakdown, the company’s U.S. card services unit recorded a 35% jump in net income to $752 million. Provisions for losses in the unit were much higher — $301 million from $47 million a year ago – but attributed to a larger reserve release in the 2011 first quarter. On the international card services side, net income was up just 4% to $197 million.
Chenault highlighted the firm’s “spend-centric business model,” in describing the results. “We knew we wouldn’t have the same benefit from reserve releases and settlement payments from Visa orMasterCard that we had received last year,” he said, and the company was also “concerned about the uneven recovery in the U.S. and a European environment that posed challenges to the global economy.”
The solution for American Express was tight discipline on spending, or as Chenault put it, “we maintained our focus on containing costs and kept the growth rate in total expenses well below that of our revenues.”
That recipe for success and the solid quarter drew little enthusiasm from the market though, as shares fell 0.8% to $57.56 in after-hours trading.