American Express Co. (AXP) - Get Report beat earnings expectations Thursday when it reported third quarter results after the closing bell. Shares rose 0.9% in premarket trading on Friday. Earnings came in at $1.88 a share beating Wall Street's estimates of $1.77. Net income was $1.7 billion, compared with estimates of $1.52 billion. Revenue was $10.14 billion, just beating expectations of $10.06 billion. "We delivered strong results this quarter driven by higher Card Member spending, fee income and loans," Chairman and CEO Stephen Squeri said in a press release. Indeed, Wall Street was looking for strength in revenue from fees. "Driving the better than expected revenue growth is a continuation of strong fee income as well as net interest income growth," Goldman Sachs analysts wrote in a note to clients ahead of the earnings print. Higher loan volumes were also a part of the equation, a good sign as the Federal Reserve recently hiked interest rates. Consolidated expenses, which reflect marketing expenses also rose 8% to $7.2 billion, which analysts were expecting, as American Express looks to acquire new customers, especially millennials. "The rise primarily reflected higher rewards and other customer engagement costs," the release said. The increased spending could also be good news for the economy at large, and the health of the American consumer. "People are spending money," JJ Kinahan, Chief Market Strategist at TD Ameritrade told TheStreet. He added, "there's no report anywhere where people aren't spending money." As for American Express' revenue from loans, the company was able to both enjoy a wider net interest margins resulting from higher rates, and increase loan volumes. "People are very comfortable spending, and very comfortable taking some loans, and even more so than they were perhaps three years ago," Kinahan said. "This type of environment is very good for American Express." One risk going forward, of course, is the chance that the economy is peaking in its cycle. The company said it expects full year earnings per share of between $7.30 and $7.40, higher than the previous range of between $6.90 and $7.30 a share. American Express shares are up 3.55% this year. PayPal also reported earnings after the bell. PYPL is a holding in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells PYPL? Learn more now. Want to Buy $1 Worth of Stock for 90 Cents or Less? You can with certain so-called "closed-end" mutual funds - an often overlooked investment class. Click here to register for a free online video in which TheStreet's retirement expert Robert Powell and an all-star panel tell you all you need to know. The webinar is sponsored by Nuveen.<doc-sep>American Express beat Wall Street's expectations for third quarter earnings, saying Thursday it had earnings per share of $1.88 on strong gains in spending by consumers and small businesses. Wall Street had expected EPS of $1.77, as forecast by Refinitiv. Revenue was a record $10.1 billion, beating the expectation of $10.05 billion. Profit of $1.6 billion rose 22 percent. The shares added 1.7 percent in after hours trading Thursday. The company said it expects full-year revenue to be up 9 percent to 10 percent and it raised its forecast 2018 earnings per share to a range of $7.30 to $7.40 from $6.90 to $7.30. Shares of American Express rose 0.5 percent in aftermarket trading. Net income in global consumer services rose 15 percent, to $779 million. In commercial services, net income rose 20 percent, to $606 million. American Express reported the day after notes from the recent Federal Open Market Committee Meeting indicate the Fed is likely to continue raising interest rates. Higher rates should benefit companies like Amex by boosting revenue and profit. Also on Thursday, American Express announced an agreement with mobile payments app firms PayPal and Venmo to enable cardholders to send payments and pay their Amex bills.<doc-sep>The American Express Company (NYSE:AXP) reported its third-quarter earnings earlier this month, and shares reacted positively to the news. The credit card company's adjusted revenue grew to $10.1 billion, a 10% increase year over year, marking the sixth consecutive quarter of at least 8% growth. The company's diluted earnings per share (EPS) rose to $1.88, a 25% increase over last year's third quarter. The strong top- and bottom-line growth was driven by a number of wide-ranging factors. Amex once again showed strong loan growth, growing its credit portfolio to $81.1 billion, a 16% increase year over year. New consumer credit accounts rose more than 50%, with half of he growth coming from millennials. Amex's small- and medium-sized enterprise (SME) customer segment grew billings by 23%, with management believing there is a "long runway for growth" still ahead of it due to the low penetration of the market in the countries where American Express is already doing business. Here's a look at the growth in the company's largest revenue segments: American Express Metrics Q3 2018 Q3 2017 Change Total revenue (adjusted) $10.14 billion $9.19 billion 10% Discount revenue $6.18 billion $5.70 billion 8% Net interest income $1.96 billion $1.68 billion 17% Net card fees $870 million $786 million 9% With all of these positive developments taking place across the business, it's easy to lose the forest for the trees. Because the most important number from American Express's third quarter was its solid growth in its discount revenue. The most critical revenue line for American Express Discount revenue is the money charged to merchants every time they accept an American Express card for a transaction. In Q3, Amex received $6.18 billion in discount revenue, an 8% increase year over year, representing about 61% of its total revenue for the quarter. It's important to remember that, while the company makes billions off of card fees and net interest income from its loans, discount revenue remains by far its largest contributor to its top line. This quarter, the average discount rate was 2.38%, the percentage the credit card company takes for each transaction. This means that for every $100 an American Express consumer charges on their card, $2.38 is eventually makes its way back to the company as revenue. This rate is down from 2.4% in last year's third quarter, which is consistent with the company's strategy. American Express used to be known as a more exclusive card, meaning it charged higher discount rates than competitors. The past few years, however, the company has consciously lowered its discount rate as it has widened its merchant coverage, making it much more palatable for a greater number of merchants to accept the card. Management made it clear on the company's conference call that it was much more concerned with raising the discount revenue, not the discount rate. CFO Jeffrey Campbell said: [F]or many quarters, you've heard us say that our main focus is on driving discount revenue growth, not managing to an average discount rate. And what you see ... is that discount revenue growth was up 9% on an FX-adjusted basis. This represents the highest FX-adjusted growth rate and discount revenue that we have shown since 2012. And we feel really good about the momentum in our largest and most critical revenue line. Driving discount revenue growth On this front, American Express has made a deliberate decision to invest in its merchant coverage for its card products. During the conference call, CEO Steve Squeri said: [Y]ou will continue to see a focus on investing in coverage. And we believe that as we have invested in coverage here in the United States, that has made a huge difference ... in discount revenue growth. And we're not at where we want to be even in the United States at this particular point in time ... so you will continue to see us focus there, you will continue to see us focus internationally on coverage ... So bottom line is, we're going to be investing for share and for scale as we continue moving forward. One of the ways American Express is accomplishing this coverage growth is with its OptBlue program, a program started to make it more affordable for smaller businesses to accept American Express at the point of sale. The program also featured other benefits for small businesses like free signage and listing on Amex's website. Another way American Express has driven card usage is by making it easier for cardholders to use its product through digital channels. This quarter, the credit card company finally partnered up with PayPal Holdings Inc (NASDAQ:PYPL), allowing card members to redeem their rewards by using PayPal, pay their card billings with their PayPal account balances, and give American Express higher visibility on PayPal's core and Venmo platforms. American Express also acquired two fintech companies this year, both of which might ultimately be made part of its app. The first, Mezi, an AI travel assistant, is already powering AskAmex, the company's concierge app. The second, Cake, is a mobile payments company that is supposed to make it easier to make payments using mobile devices at bars and restaurants, eliminating the need for these businesses to accept cash. Both should bolster Amex's mobile capabilities, ultimately making it easier for consumers to use and engage with their American Express products. Look for more success from American Express Based on the midpoint of its newly raised guidance for the full fiscal year, American Express shares now sport a more-than-reasonable P/E ratio of about 14.5, even after the jump its stock price experienced following the quarter. While there are many reasons to be bullish on the company's future, don't lose focus on what's most important: American Express is steadily growing its largest revenue stream, making sure cardholders can use their cards wherever -- and however -- they please. Over the past year, shares in the credit card company have gained 16%, essentially doubling the S&P 500 index's returns. Don't be surprised if these market-beating returns continue well into the future.<doc-sep>
When it comes time to make a purchase, more people are turning to their trusty American Express (NYSE:AXP) cards. The card company known for higher-spending customers reported that it earned $1.65 billion in the third quarter, a 22% increase over 2017, helped by rising spending volumes, loan growth, and slowing growth in loan provisions to cover bad loans. American Express' third quarter: By the numbers The table below shows a high-level view of American Express' financial results for the third quarter. Pre-tax income was included to show the change in the company's earnings power on a basis that isn't affected by the Tax Cut and Jobs Act, which significantly lowered its average tax rate in 2018. Metric Q3 2018 Q3 2017 Year-Over-Year Change Net revenue $10.14 billion $9.29 billion 9% Pre-tax income $2.12 billion $1.83 billion 16% Net income $1.65 billion $1.36 billion 22% Diluted EPS $1.88 $1.51 25% What happened at American Express this quarter? Results for the third quarter showed that American Express' performance in the first half of 2018 wasn't just an anomaly. The company continued to build on its progress, reporting growth in spending and lending while showcasing credit metrics that can only be described as the best among major card issuers. American Express is winning in lending. Card member loans increased to $77.6 billion at the end of the third quarter, rising 14% year over year. On the conference call, management said that about 60% of its loan growth is coming from existing customers, a testament to its ability to generate more revenue from its card members over time. Card member spending is soaring. Worldwide billed business grew to $294.7 billion in the third quarter, up 10% year over year. Importantly, this was powered by raw increases in the number of cards and spending per card, as billed business grew at a 10% clip before and after adjustment for currency fluctuations. Notably, spending is growing fastest in proprietary cards, on which the company earns a larger fee for every swipe. Credit quality remains high. American Express reported a write-off rate of 2.5% of card loans, in line with its performance in the previous quarter, and up from its 2.1% write-off rate in the year-ago period. The year-over-year increase in write-offs is far from troubling, given its write-off rate remains far those of below competing card issuers. (For perspective, JPMorgan Chase 's card charge-off rate stood at 2.9% this quarter.) 's card charge-off rate stood at 2.9% this quarter.) Provision growth moderated. When lenders make more loans, they inevitably encounter more loan losses. Earlier this year, American Express said it expected to set aside more money for loan losses in 2018, guiding for provisions to grow "in the mid-30% range" compared to 2017. After coming in higher than guidance in the first half of the year, third-quarter provisions grew just 6% compared to the year-ago period. For the first nine months of the year, provisions are up only 25% over the year-ago period, putting it on track to beat guidance for the full year. What management had to say American Express is optimistic about its ability to capture a greater share of its customers' financing needs. In response to an analyst's question, CFO Jeff Campbell pointed out that there are ample opportunities to grow its loan book with its existing customer base. Referring to its U.S. consumer business, Campbell said that the company captures "roughly 50% of our customers' spending behaviors and only 25% of their borrowing behavior." Logic follows that American Express can drive loan growth by encouraging its card members to think about their cards not just as a way to spend, but also a way to carry balances. Importantly, the U.S. consumer business made up 32% of its billed business this quarter, so even modest gains in its share of customer borrowing activity move the needle. American Express earns very attractive returns in lending, particularly since its customers tend to have above-average incomes and FICO scores, leading to lower credit losses across economic cycles. In the third quarter, net interest income, or interest income it earned minus interest paid on deposits and other borrowings, increased 17% to $1.96 billion. Looking ahead American Express shareholders should be pleased with its ability to drive spending and lending volume. The company has come a long way since 2015, when it lost a key relationship with Costco.