For Amex Earnings, The C’s Have It

Amex’s continued cost cutting, growth in card billings and promise on the commercial side of the house seemed enough to keep the Ghosts of Costco Past away. More on what CEO Ken Chenault told analysts during the Q2 earnings call.

All Costco, all the time. That might be the subtitle of any article, and the subtext of any conversation, about American Express. The card giant might be forgiven for gently prodding investors that there’s a bit of business that still survives, and even thrives. We’re being tongue in cheek, of course, but only a little.

The fact remains that the end of the co-branded relationship with Costco has fretted investors and analysts alike, with collective eyes on the impact to the bottom line, with a one-time gain to be collected, appreciated and possibly dismissed as observers wanted to see more about what else would keep the earnings engines chugging.

The headline revenue number was a bit light, coming in at a smaller than 1 percent year-over-year decline to $8.2 billion, off the mark from the growth of 1 percent that the Street had expected. But conversely, earnings per share on an adjusted basis came in at $2.10, nicely above the $1.97 consensus.

That top line hit was tied in part to the loss of Costco, but the firm did indeed see gains in its net card fees and also in the all-important net interest income number.  

Looking at the worldwide billed business growth, that number came in at 4 percent year over year in the second quarter, down from a previous 6-percent rate, but within the range it had previously set as a goal. Drilled down a bit by segment, the U.S. consumer services business seems a bit complex via moving parts from the Costco portfolio transaction, as revenues were down a few percentage points but there were positive impacts to the bottom line from the sale, not surprisingly.

Of interest were dual gains in the international consumer and network business, which saw net income up 18 percent, three times faster than a still significant top line push. Likewise, global commercial services, as a segment, was up 5 percent, profit wise, on a flat top line. The cost control – where Amex has promised to strip out $1 billion in operating expenses – has been gaining traction.

How to accelerate top line growth? CEO Ken Chenault said in remarks that there is progress on gathering new revenue, through “acquiring 3 million new proprietary cards worldwide” and also boosting merchant coverage globally. As he has noted before, spending levels companywide are to be elevated, and the executive also stated that the card market in the U.S. remains a competitive one. Yet, as CFO Joseph Campbell noted on the conference call, card fees were up across gold cards, and platinum cards and also Delta cards, where “value proposition continues to resonate in the marketplace.”

Looking forward, the firm said full year results for 2016 should be at the high end of guidance that had been previously issued, with earnings projected during that time to be in a range between $5.40 to $5.70 a share.