American Express reported first quarter profit beating Wall Street expectations, but failed to deliver on revenue, blaming a stronger US dollar impacting its international operations. After the bell on Thursday, American Express (AXP, Financial) shares dropped 1.4% to $79.80. So far in 2015 AmEx has been the Dow Jones Industrial Average’s worst performing entity having been on a 14% decline in 2015.Â
American Express reported EPS of $1.48 and revenue of $7.95 billion when analysts were forecasting for EPS of $1.37 and revenue of $8.2 billion. The credit card processing giant blamed the revenue on the strong dollar with the company’s net income hitting $1.5 billion that had risen 6% from $1.4 billion a year ago. Diluted EPS rose 11% to $1.48 from $1.33 a year ago.
Management talks
According to AmEx CEO Kenneth Chenault, the loss of its exclusive co-branding deal with Costco (COST, Financial) did not make much economic impact. American Express also had a co-branding deal with JetBlue (JBLU, Financial). Chenault said "First quarter results showed solid core performance and continued progress in expanding the American Express franchise despite an impact from several of the headwinds we’re confronting."
Backing its previous full-year guidance, AmEx pointed out earnings would stay the same or drop slightly. Currency headwinds and investments to offset losses from ending its partnership with Costco Wholesale were the reasons AmEx cited for low revenue numbers. This low revenue growth has forced the company to pull back on operations and will be cutting over 4,000 jobs in 2015.
Through the entire quarter, American Express has had to battle overwhelming odds. This is evident from its various divisions. Net income for the US Card Services division went up 7% with higher spending accounting mainly for the increase. Provisions for losses went down 13% from a year ago. This suggested consumers targeted by AmEx for cards are in decent financial shape and pose little threat of default or negative results for the credit card processing giant.
Performance post-mortem
The various global and international business operations owned by American Express did not fare well and the impact is visible on the number sheet. Divisions such as the International Card Services took the largest beating, with a 16% drop in net income. Income from global commercial services dropped by 2%. Global Network and Merchant services each posted flat income in comparison to the previous year’s figures.
Analysis
Traders had to observe American Express’ miss on the revenue affecting a drop in the share price that fell more than 1% in the first hour of after-hours trading post the earnings announcement. Analysts are giving American Express a HOLD rating thanks to the company taking steps to counter the negative impact of losing Costco as a co-branding partner. Thanks to its new Plenti loyalty coalition business, AmEx is betting on building a rewards program that will entice cardholders to carry out business with small merchants. Though the management sounds quite positive, it is difficult to predict as to how long it would take for the banking giant to recover from the recent downturns, hence we recommend a HOLD on the stocks of AmEx.
