American Express Company's (
AXP) third quarter earnings from continuing operations of 54 cents per share came in substantially ahead of the Zacks Consensus Estimate of 36 cents. However, the results were down 27.0% from 74 cents in the year-ago quarter.
The results for the quarter included an after tax $113 million non-recurring benefit associated with the company's accounting for a net investment in consolidated foreign subsidiaries. Excluding that benefit, earnings from continuing operations would have been 44 cents per share.
Results for the quarter deteriorated over the prior-year quarter primarily as a result of decrease in income in all segments except International Card Services, which recorded a net income of $127 million, compared to $67 million in the prior-year quarter. Also, a relatively strong U.S. dollar contributed to lower non-U.S. revenues, provisions and expenses during the reported quarter.
Net income for the quarter came in at $640 million, down 21.5% from $861 million in the prior-year quarter. On a per share basis, income was 53 cents, compared to 70 cents in the prior-year quarter. Loss from discontinued operations came in at $2 million, compared to $46 million in the year-ago quarter.
Total revenue net of interest expense declined 16.0% year-over-year to $6.0 billion. The decrease in revenue was due primarily to a decline in card-member spending and loan volumes. However, overall billings have stabilized during the last few months.
Provisions for losses were $1.2 billion, compared to $1.4 billion in the prior-year quarter.? A 13.3% year-over-year decrease in provisions for losses was due primarily to lower average card-member receivables and loans.
Total expenses for the quarter decreased 17.1% year-over-year to $3.9 billion, reflecting in part the results of the company's re-engineering initiatives.
In the U.S. Card Services business, net charge-offs fell to 8.9% from 10.0% in the prior quarter, though up over the prior-year quarter.
The management expects credit card charge-off rate to decline in the fourth quarter compared to the third quarter.
At June 30, 2009, the company's Tier-1 risk based capital ratio was 9.7%. Its Tier-1 common risk based ratio was also 9.7%. This compared favorably to the regulatory benchmark of 4%.
Return on average equity (ROE) came in at 11.7%, down substantially from 27.8% in the year-ago quarter. Return on average common equity (ROCE) – which excludes the impact of preferred shares and other adjustments – was 10.4%, down from 27.6% in the prior-year quarter.
U.S. Card Services reported a net income of $109 million, compared to a net income of $244 million in the prior-year quarter. Total revenue for the quarter decreased 16.1% year-over-year to $2.9 billion, driven by reduced card-member spending, lower loan balances and lower securitization income.
International Card Services net income came in at $127 million, compared to $67 million in the year-ago quarter. Total revenue decreased 6.8% year-over-year to $1.1 billion, primarily driven by reduced card-member spending and lower loan balances.
Global Commercial Services net income came in at $116 million, compared to $134 million in the prior-year quarter. Total revenues decreased 16.9% year-over-year $997 million, reflecting reduced spending by corporate card-members and lower travel commissions and fees.
Global Network & Merchant Services reported a net income of $240 million, down 7.0% from $258 million in the prior-year quarter. Total revenues decreased 10.1% year-over-year to $963 million, primarily reflecting lower merchant-related revenues driven by a decrease in global card billed business.
Corporate & Other net income came in at $50 million, compared to a net income of $158 million in the prior-year quarter. The results for the reported quarter include recognition of $220 million ($136 million after-tax) for the MasterCard and Visa settlements.
Though results for the last few quarters benefited from successful re-engineering efforts and a diversified business model, American Express experienced continued weakness in card-member spending and high levels of loan losses. We anticipate continued benefits from the company's diversification and cost-cutting efforts, but the ongoing global crisis and volatile U.S. dollar will continue to impact the results in the coming quarters.
