American Express: Modest Loan Growth and Strong Credit Wins the Race
American Express Co. (NYSE:AXP) closed the regular trading session up 1.34 percent at $76.26 per share on Wednesday and edged higher in post-market trading after reporting third-quarter financial results that came in ahead of expectations. Revenues at the credit services company (net of interest expense) climbed 6 percent on the year to $8.3 billion, beating the average analyst estimate of $8.19 billion. Earnings per share jumped 15 percent to $1.25, also beating the average analyst estimate of $1.22 per share.
The profit engine that drives credit services companies like American Express and Capital One Financial (NYSE:COF) (which will report third-quarter results on October 17) pretty much boils down to how much people are using credit, and how often they are delinquent or default. In the third quarter, both of these conditions improved, fueling the company’s strong top- and bottom-line growth despite what has been a generally uncertain financial environment.
“Spending on our global network rose 7 percent (9 percent adjusted for currency translations) and Card Member loans continued the modest growth rates we have been seeing for the past several quarters,” commented Chairman and CEO Kenneth Chenault, adding that, “Credit quality indicators remained at historically strong levels.”
Provisions for losses did edge up 3 percent to $492 million, although American Express explains that the increase “reflects lower reserve releases from a year ago, partially offset by the benefit of lower net write-offs in the current quarter.” Consolidated expenses climbed 5 percent on the year to $5.8 billion, reflecting higher rewards and marketing costs. The company is in the process of “containing” operating costs.
American Express has outgunned competitors like Capital One this year to date, climbing nearly 30 percent through the middle of October. Capital One, which is expected to report earnings per share of $1.80 on $5.6 billion in revenue, has climbed about 17 percent this year to date.