American Express Co. (AXP, Financial), a major Warren Buffett (Trades, Portfolio) holding, said second-quarter revenues increased to a record $10 billion on “higher spending” from consumer, small business and corporate card members.
The New York-based credit services company reported net income of $1.6 billion and earnings of $1.84 per share, compared to net income $1.3 billion and earnings of $1.47 per share in the prior-year quarter. Despite strong earnings results, the company still missed top-line consensus estimates by $50 million.
Company accelerates revenue through several strategic imperatives
CEO Stephen Squeri said while “broad-based increases in card member spending and fees” drove revenue growth, the company also benefited from higher loan volumes. Revenues in the Global Consumer Services Group and Global Commercial Services business segments increased 25% year over year and 18% year over year.
Squeri detailed several strategic imperatives in the earnings slides, including expanding leadership in the premium customer space and building on the company’s strong position in commercial payments. The CEO observed continued expansion in the company’s Platinum Card to regions like Mexico and Hong Kong. Additionally, American Express continues to invest in key partnerships: Squeri mentioned that the company announced new card offerings with Jeff Bezos’ Amazon.com Inc. (AMZN, Financial), Marriott International Inc. (MAR, Financial) and Wells Fargo & Co. (WFC, Financial).
Company margins and returns slightly lag competitors
Although the company reported strong revenue growth, consolidated expenses increased 7% primarily due to higher rewards expenses and various marketing and business development costs. American Express’ net margin and return on assets underperform 61% and 56% of global competitors, suggesting modest profitability.
Stock falls on revenue miss
American Express’ stock slid over 3% in post-market trading as the company missed analyst expectations on revenue. Despite this, GuruFocus still lists three medium warning signs for American Express: a price near a 10-year high, a price-sales ratio near a three-year high and a dividend yield near a three-year low. As of 4:50 p.m. Wednesday, the company trades approximately $20 higher than its median price-sales value and $20 lower than its maximum price-sales value, suggesting moderate overvaluation.
See also
The Berkshire Hathaway Inc. (BRK.A, Financial)(BRK.B, Financial) CEO owns 151,610,700 shares of American Express as of the latest portfolio date. The position represents 7.48% of the conglomerate’s portfolio: additionally, Buffett owns the largest stake in American Express among gurus. Other gurus that own the stock include Dodge & Cox, First Eagle Investment (Trades, Portfolio) and Ken Fisher (Trades, Portfolio).
Disclosure: No positions.
