Market Overview

American Express Beats Analyst Expectations, Stock Falls


American Express (NYSE: AXP) exceeded analyst expectations with earnings per share of $1.01, two cents above analysts' average estimate and a 15% increase from EPS of 88 cents in Q4 2010. Total revenues net of interest expense climbed 6.8% to $7.74 billion thanks in part to a near 8% increase of discount revenue.

Analysts had expected earnings of 99 cents per share and revenue of $7.92 billion for the quarter due mostly to an expansion in international markets. international card services grew by 8%, global commercial services grew by 11%, and global network and merchant services grew by 12%. Revenues net of interest expense in the global network and merchant services arm of the company climbed to $1.3 billion on expenses of $794 million.

Growth also came from a push of Amex credit services due to increased partnerships, such as a partnership with Lianlian Group, a Chinese network that offers mobile payment services to Chinese customers. American Express has invested $125 million in LianLian Pay, whose partnerships with China Mobile (NYSE: CHL) and China Telecom (NYSE: CHA) will provide broad coverage for the mobile pay service when it becomes available.

American Express has also dipped its toe in mobile payment solutions in the American market with a $19 million investment in Payfone, a mobile payments startup that allowed users to charge transactions to their mobile phone account instead of using a credit card. Payfone has also partnered with Verizon (NYSE: VZ) and Research in Motion's (NASDAQ: RIMM) BlackBerry Partners.

Beyond expansion into new payment channels, American Express has seen a consistent improvement in its credit portfolio. Yesterday, the company announced that delinquency rates had fallen in December, suggesting that future charge-offs will decline as well. In December, charge-off rates fell to $53.7 million, or 2.3% of balances on an annualized basis. This was down slightly from November's rate of 2.4% and a strong drop from last year's charge-off rate of 4.1% in December 2010.

The improvement in credit quality has not translated into a sacrifice of market presence, as the company's worldwide number of active cards jumped by 7% to 97.4 million, up by 6.4 million. The company's billed business jumped 11% to $219 billion due to strong card usage, with loan balances for cardmembers jumping nearly $2 billion from last year's figures to $62.6 billion. American Express cardholders spent on average $3,933 per card, an increase of 8% worldwide.

This means that, despite lower default rates, American Express's consumer base are still maintaining a balance on their credit cards in a sign that increased consumer confidence is translating into a higher willingness to maintain credit card debt.

Lower default rates have also helped the company's bottom line. The company's provisions for losses also jumped by 71%, thanks to a smaller reserve release in the company's cardmember lending portfolio relative to Q4 2010 thanks to lower write-offs due to less delinquencies. Provisions also increased slightly because of a greater intake from consumers.

While the company was able to improve its margin slightly by decreasing employee costs despite an increase of 1,500 employees over last year, it could not keep other operational costs down. Expenses from funding cardmember rewards jumped by 10%, which was offset by a 12% decrease in marketing and promotion.

The lower marketing costs do not translate to lower market exposure, as American Express is looking at partnerships and expansions into new technologies to increase its customer base instead of more traditional marketing methods.

American Express closed up slightly on Thursday in anticipation of a strong earnings announcement but fell below the $50 mark in after hour trading. Upon news of the company's earnings, the stock is down slightly from its close at 50.20 in after hours trading.

Posted-In: Earnings News Best of Benzinga


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