American Express (AXP)

Q3 2011 Earnings Call

October 19, 2011 5:00 pm ET


Daniel T. Henry - Chief Financial officer, Executive Vice President and Member of Operating Committee

Rick Petrino -


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

Ryan M. Nash - Goldman Sachs Group Inc., Research Division

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

Donald Fandetti - Citigroup Inc, Research Division

Kenneth Bruce - BofA Merrill Lynch, Research Division

Betsy Graseck - Morgan Stanley, Research Division

Craig J. Maurer - Credit Agricole Securities (USA) Inc., Research Division

Brian Foran - Nomura Securities Co. Ltd., Research Division

Robert P. Napoli - William Blair & Company L.L.C., Research Division



Ladies and gentlemen, thank you for standing by. Welcome to the American Express Third Quarter 2011 Earnings Release Conference Call. [Operator Instructions] As a reminder, this call is being recorded. I would now like to turn the conference over to our host, Mr. Rick Petrino. Please go ahead.

Rick Petrino

Thank you. Good evening. We appreciate everyone joining us for today's discussion. Before I turn it over to our CFO, Dan Henry, I do need to remind you that the discussion today contains 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 2010 10-K report, already on file with the SEC. And the third quarter 2011 earnings release and earnings supplement, as well as the presentation slides, all of which are now listed on our website at We have provided information that describes 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 of -- some key points related to the quarter's earnings through the series of slides included with the earnings documents distributed, and provide some brief summary comments. Once Dan completes his remarks, we will open the line for Q&A.

With that, let me turn the discussion over to Dan.

Daniel T. Henry

Okay, thanks, Rick. I'll start on Slide 2, Summary of Financial Performance. The revenues net of interest expense was $7.6 billion, 9% higher than the prior year. Now this growth rate is down slightly from the second quarter, but it is best-in-class compared to issuing competitors. On an FX-adjusted basis, it's 6% growth.

Net income came in at $1.2 billion, 13% higher than last year, and EPS is $1.03. Return on equity is 28% and you can see that shares outstanding have decreased and that's a result of share repurchases, which I'll cover in more detail later.

We move to Slide 3, Metric Performance. You can see the Billed business was $207.7 billion, up 16% and 13% on an FX-adjusted basis. So Billed business, again, showed strong growth. It's the seventh quarter in a row that we've had strong Billed business growth. We are growing over strong growth last year, while our competitor spending growth last year -- while improving or growing the overall lower growth rates the year before. Cards-in-force are 95.8 million cards, up 8%. That represents 21% growth in cards in GNS and 2% growth in proprietary cards.

Average spend continues to increase, reflecting the high level of engagement of our Cardmember base. Cardmember Loans are up 2%, the same growth rate that we saw in the second quarter. And travel sales grew 13%, driven primarily by air sales.

Moving to Slide 4. So this is Billed Business Growth by Segment, and we continue to have broad-based growth across all segments. Total Billed business growth decreased about 2%, compared to the second quarter. If we look at USCS, it came in at 12%, down 1% from the second quarter; Global Corporate Products is at 14%, also down 1% from the second quarter; GNS continues to be very strong at 23%, down 2% from the second quarter; and International Consumer came in at 9%, again, 2% down from the second quarter. So we see a slight pop decline across each segment. But Billed business is holding up well considering the economic uncertainty. Given these strong growth rates, we would expect to gain share again this quarter in the U.S.

Moving to Slide 5, this is Billed Business Growth by Region. So Billed business growth by region on an FX-adjusted basis, if we look at Asia, it came in at 19%, the same growth rate as the second quarter. Latin America and Canada is at 14%, down 1% from the second quarter. The U.S. is at 13%, again, down 1% from the second quarter. EMEA came in at 8%, down from 11% in the second quarter. However, we continue to have strong growth in a number of countries in Europe. Germany grew 10%, France 8% and U.K. 12%. Now they're each down between 100 and 300 basis points. On an absolute basis, it is good growth. So we have very good broad-based growth across the regions, although more softness in Europe.

If you look at Slide 6, so this is Lending Billed Business compared to Managed Loan Growth. So the solid line is the growth in spending on lending products, and this is at 14% in the third quarter. That compares to 18% in the second quarter of this year and 15% in the third quarter of 2010. The dotted line is growth in loans, and you can see that it is at 2%, the same as the second quarter. We continue to have a spread between the growth in spending on lending products and the growth in loan balances. This is due in part to our actions as we have changed our strategy to focus on Charge Card and premium lending. So just as in sight, Charge Card Billed business and receivable growth continue to move in tandem.

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