American Express Co. (AXP, Financial) reported net income of $1.3 billion and diluted earnings per share of $1.47 during the second quarter. While these values slightly underperformed expectations, the company offered a solid business position for the rest of the year.
Brief summary of earnings report
The New York credit services company said that its second-quarter net income declined $700 million from its prior-year quarter net income of $2 billion. The prior-year quarter results included a $232 million restructuring charge, results related to the now-discontinued relationship with Costco Wholesale Corp. (COST, Financial) and a gain of $1.1 billion ($677 million after-tax) from the sale of the related loan portfolio.
Despite lower earnings, American Express continued to execute a strategy that transforms the company’s “consumer, commercial and merchant businesses,” according to CEO Kenneth Chenault. Amex reported adjusted revenue growth of 8% and increased its adjusted card member spending by 8% during the quarter, both contributing to an operating margin that is near a 10-year high of 26.30% and outperforms 59% of global credit services companies.
Company passes Federal Reserve’s stress test, increases dividend
Chenault listed several initiatives to “build a leaner organization” and make American Express more diversified. According to the CEO, Amex “maintained a strong balance sheet and results from the Federal Reserve’s recent stress test show a resilient business model.” GuruFocus ranked the company’s financial strength a solid 6 as the company has a good Beneish M-score and high return on invested capital.
According to the earnings report, the Fed approved Amex’s plan to return an additional $4.4 billion to shareholders during the next four quarters. The company announced June 30 plans to increase the quarterly dividends to 35 cents per share, a 9% increase from the prior dividend.
Stock price rises on solid balance sheet and earnings guidance
Amex’s share price rose approximately 0.48% as company management reiterated its full-year earnings guidance of $5.60 to $5.80 per share. The company has good growth potential for 2017 even though the stock trades near a three-year high and exceeds the median price-sales valuation by approximately $12.60 per share.
Berkshire Hathaway Inc. (BRK.A, Financial) (BRK.B, Financial) CEO Warren Buffett (Trades, Portfolio) owns the largest stake in Amex with 151,610,700 shares. Ken Fisher (Trades, Portfolio) added 368,347 shares of Amex during the second-quarter at an average price of $79.07 per share.
Disclosure: The author has no positions in the stocks mentioned.
