If the rich get richer, which seems to be the case now more than ever, then credit card companies catering to the rich get richer too (check out Barron's most recent cover story). American Express
AmEx missed analyst expectations by a penny or two (depending on who you ask) per share. In addition, during the conference call, CFO Gary Crittenden noted that interest income could lag as well-timed interest rate hedges roll off, and that loan loss expenses would face tougher comparisons due to the fact that bankruptcy regulatory changes made last year's comparisons easier, and this upcoming year's more difficult.
However, AmEx seems to be in a class of its own and produced strong results once again. For the quarter, the U.S. card segment's sales increased 18% -- echoing Capital One's
In total, AmEx grew sales 13% over the fourth quarter of last year. Operating expenses generally grew in line or faster than revenues; however, most of the expense increase was offset by a 4% decrease in loan loss provisions and a 10% increase in marketing expenses. This doesn't bode well for near-term results because, as previously mentioned, loan losses could creep up as the benefits from the bankruptcy regulatory changes wear off. However, this boosted net income for the quarter by 24%, to $922 million.
AmEx's management expressed a great deal of optimism about its small-business segment, where industrywide credit card penetration was only 15%, compared to U.S. consumer and international consumer credit card penetration of more than 40% and 25% respectively. AmEx also noted its business with Costco
Investors with long-term horizons shouldn't be bothered by the somewhat pessimistic near-term outlook. AmEx has one of the widest economic moats in the world, evidenced by its scintillating return on average equity, which increased 9% to 34.7%, due to the spinoff of the lower-returning Ameriprise
For some more credit card commentary:
- Credit Cards May Be Here to Stay
- Capital One's Bright Future
- Capital One's Short-Term Pain for Long-Term Gain
MasterCard is an Inside Value recommendation, Costco is a Stock Advisor recommendation, and Bank of America is an Income Investor recommendation. Check out our full suite of newsletter services for any investing appetite.
Fool contributor Emil Lee is an analyst and a disciple of value investing. He doesn't own shares in any of the companies mentioned above and appreciates your comments, concerns, and complaints. The Motley Fool has a disclosure policy.
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