American Express Company (NYSE:AXP) reported 3Q12 EPS of $1.09 vs. Goldman Sachs estimates of $1.10 and consensus of $1.08. Relative to expectations, top-line growth came in below expectations ($7.86bn), while lower expenses and better credit ($479mn provision vs. Goldman Sachs estimate of $525mn) results helped offset the top-line shortfall. Overall the results as in line as spend volumes were better than expected, credit remain strong and expenses came in lower and helped offset top-line pressure.
Analysis
Billed business shows improvement over quarter
Billed business came in at 8% on an FX-adjusted basis, ahead of analysts expectation of 7% (AXP had said 7% at the investor day in August), although FX continued to weigh on results as reported came in at a lower 6%.
Expense management disciplined
Operating expenses declined 2% YoY or 4% on adjusted basis, as revenue grew 4% YoY. Showing further discipline, adjusted expenses as a percentage of revenue declined to 70% from 71% in 2Q12 and 75% in 3Q11. The company continues to guide to positive operating leverage (2-3 year target).
Capital returns strong in 3Q
American Express Company (NYSE:AXP) repurchased $1bn of stock in 3Q, reducing its share count by 1.5% QoQ. When factoring in dividends AXP returned 94% of its 3Q EPS, compared to 132% in 2Q12. Capital ratios remain strong with T1C at 12.7%, with its Basel III T1C estimate approximately 20 bp lower (12.5%).
Implications
Analysts expect the focus on the call to be on its outlook for billed business growth given the challenging global macro backdrop (Europe decelerated once again, which a common excuse among companies these days).
Shares of American Express Company (NYSE:AXP) are down 0.65% in after-hours trading.
Full Disclosure: I have a long position in American Express
