American Express Management Discusses Q4 2010 Earnings Call Transcript

American Express (AXP)

Q4 2010 Earnings Call

January 24, 2011 5:00 pm ET

Executives

Daniel Henry - Chief Financial Officer, Executive Vice President and Member of Operating Committee

Ron Stovall - Senior Vice President of Investor Relations

Analysts

Robert Napoli - Piper Jaffray Companies

Craig Maurer - Credit Agricole Securities (USA) Inc.

Sanjay Sakhrani - Keefe, Bruyette, & Woods, Inc.

Michael Taiano - Sandler O’Neill & Partners

Richard Shane - JP Morgan Chase & Co

Betsy Graseck - Morgan Stanley

Donald Fandetti - Citigroup Inc

Bruce Harting - Barclays Capital

Bradley Ball - Evercore Partners Inc.

Kenneth Bruce - BofA Merrill Lynch

David Hochstim - Buckingham Research Group, Inc.

Brian Foran - Goldman Sachs

Christopher Brendler - Stifel, Nicolaus & Co., Inc.

Bill Carcache - Macquarie Research

Presentation

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the American Express Fourth Quarter 2010 Earnings Release. [Operator Instructions] I'd like to now turn the conference over to our host, Mr. Ron Stovall. Please go ahead.

Ron Stovall

Okay. Thanks, Anne, and welcome, everybody. We appreciate all of you joining us to for today's discussion. As usual, it's my honor to present to you some legal information and that is that the discussion today contain certain forward-looking statements about the company's future financial performance and business prospects, which are subject to risks and uncertainties and speak only as of today. The words believe, expect, anticipate, estimate, optimistic, intend, plan, aim, will, should, could, likely and similar expressions are intended to identify forward-looking statements.

Factors that could cause actual results to differ materially from these forward-looking statements including the company's financial and other goals are set forth within today's earnings press release, which was filed in an 8-K report, and in the company's 2009 10-K report and 2010 first, second and third quarter 10-Q reports already on file with the Securities and Exchange Commission, in the fourth quarter 2010 earnings release and earnings supplement as well as the presentation slides, all of which are now posted on our website at ir.americanexpress.com. We have provided information that describe certain non-GAAP financial measures used by the company and the comparable GAAP financial information. We encourage you to review that information in conjunction with today's discussion.

Today's discussion will begin with Dan Henry, Executive Vice President and Chief Financial Officer, who will review some key points relating to the quarter's earnings with a series of slides included with the earnings document distributed and provide some brief summary comments. Once Dan completes his remarks, we will turn to the moderator who will announce your opportunity to enter the queue for the Q&A period. Up until then no one is actually registered to ask questions.

While we will attempt respond to as many of your questions as possible before we end the call, we do have a limited amount of time. Based on this, we ask that you limit yourself to one question at a time during the Q&A. With that, let me turn the discussion over to Dan.

Daniel Henry

Okay. Thanks, Ron. As you all know, last Wednesday, January the 19th, we announced our EPS for the fourth quarter of 2010. We have made certain decisions regarding reengineering, and we plan to start to notify employees and therefore, we had an SEC disclosure obligation. Instead of leaving an open question for you to figure out in terms of how to think about the fourth quarter EPS considering the reengineering charge, we decided to announce EPS.

Looking at Slide 2, you can see that revenues are up 13%. But I remind you that in the fourth quarter of 2009, we still had securitized receivables that were off-balance sheet. Therefore, the more meaningful revenue growth is the managed total revenue net of interest expense of 4%. You can see that income from continuing operations was slightly over $1 billion, $1,062,000,000, and EPS was $0.88 and ROE had climbed to 27%.

If we look at Slide 3, we see that the reengineering costs in the fourth quarter on a pretax basis was $113 million. On an after-tax basis, the impact on net income was $74 million or $0.06. If you adjust for that reengineering cost, EPS was $0.94.

I'll remind you that the reengineering related primarily to a decision to consolidate locations within our company's global servicing network. We plan to close Greensboro, North Carolina, and transfer that work to other locations in the United States: Fort Lauderdale, Salt Lake City and Phoenix. We also plan to close Madrid after a consultation with local officials. That work will be transferred to Brighton in the U.K. and Buenos Aires in Argentina. We also plan to transfer some work from Sydney to Japan related to the Japanese card servicing. While 3,500 positions are impacted by the consolidation of locations, the decrease in staff levels is expected to be about 550.

If we move to Slide 4, we'll look at our metrics. Billed business growth continued to be strong, growing 15% or 14% on an FX-adjusted basis. And again, we are outpacing the growth in our major competitors. Billed business for the quarter and the full year are at record levels. Cards-in-force increased 4%, proprietary cards were flat, but GNS cards increased 10% and that averaged to a 4% increase in cards-in-force.

Average Cardmember spending increased, and it continued to be driven by higher Billed business. It reflects our strategy to focus on premium segments, both in Charge Card and the lending products. Loans on a managed basis are down 4%. They were down less than they had been earlier in the year. And in fact, in the quarter, sequentially, loans grew 6% and that is due impart to seasonal spending. And travel sales are up 12%.

Move to Slide 5, and this is a chart of monthly Billed business going back to October of '08. The bars are the dollar amount of Billed business per month and the green bars are the fourth quarter amounts for '08, '09 and 2010. The yellow and blue lines are the growth rates both on a reported and FX basis, and you can see the growth rates at the top of the chart. You can see that we've had strong growth throughout 2010 with a seasonal increase in the fourth quarter. The fourth quarter Billed business in 2010 are well above the '09 and '08 levels.

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