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American Express (AXP) Q1 Earnings Beat, Revenues Miss

Zacks Equity Research

American Express Company’s AXP adjusted earnings of $2.01 per share beat the Zacks Consensus Estimate by 0.5% and grew 8% year over year in first-quarter 2019. Higher-than-expected billings and loan growth led to the earnings outperformance.

Revenues (net of interest expenses) came in at $10.4 billion, missing the Zacks Consensus Estimate by 1.2%. The top line increased 7% year over year, driven by higher loan volumes, and an increase in Card Member spending and fees. Excluding the effect of foreign exchange rates, adjusted revenues, net of interest expenses, grew 9%.

Provisions for loss totaled $809 million, up 4% year over year, which was attributable to growth in loan and receivable portfolio and an increase in higher write-offs.

Total expenses of $7.6 billion increased 11% year over year due to higher customer engagement costs and litigation-related charge.

American Express Company Price, Consensus and EPS Surprise

American Express Company Price, Consensus and EPS Surprise | American Express Company Quote

The company was successful in  expanding its merchant network and added 3.1 million new proprietary cards in the quarter driven primarily by its digital acquisition initiatives.

Strong Segmental Results

American Express’ Global Consumer Services segment reported net income of $821 million, down 1% year over year. Total revenues, net of interest expenses of $5.6 billion, were up 9% year over year, reflecting higher loans, Card Member spending and fee income.

Global Commercial Services’ net income of $586 million was up 7% year over year. Total revenues, net of interest expenses, increased 6% year over year to $3.2 billion, primarily reflecting higher Card Member spending.

Global Merchant and Network Services’ net income rose 22% year over year to $631 million in the reported quarter. Total revenues, net of interest expenses, remained stable year over year at $1.6 billion.

2019 Guidance Affirmed

The company backed up its earlier guidance for 2019, which calls for earnings of $7.85 to $8.35 per share and revenue growth between 8% and 10%.

Business Update

During the quarter, the company extended its co-brand partnership with Delta Air Lines, Inc. DAL, which will last till 2030. This deal will be accretive to the company's revenues.

Our Take

We expect the company’s expansion in premium consumer space, strong position in commercial payments and strengthening of global integrated network to provide unique value investment in the digital platform will drive growth.

Nevertheless, top line is likely to feel the pressure of stiff competition. The company expects revenue increase of 8-10% for 2019, which reflects that revenue growth will remain essentially unchanged from the 9% increase in 2018. Moreover, it will continue to witness an increase in reward expenses to attract more customers amid stiff competition in the market.

Then again, the company’s continued investment in technology, deal signing and partnership, and a solid balance sheet should support business growth.

Zacks Rank

American Express currently carries a Zacks Rank #3 (Hold).

Stocks to Consider

Some better-ranked stocks are AXA Equitable Holdings, Inc. EQH and Houlihan Lokey, Inc. HLI. Both these stocks carry a Zacks Rank #2 (Buy).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Houlihan Lokey beat estimates in three of the four quarters, the average positive surprise being 7.52%. AXA Equitable Holdings surpassed estimates in each of the four reported quarters with an average positive surprise of 12.1%.

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