In October, American Express (NYSE:AXP) announced its third quarter results and it once again delivered strong performance as its earnings per share rose from $1.26 in the third quarter of 2013 to $1.41 in the most recent quarter, outpacing the $1.35 expected by analysts polled by Thomson Reuters.
This continued the impressive trend American Express has been on in 2014, and as a result of its sustained successes, through the first nine months of the year, its earnings per share stand at $4.19, 14% higher when compared to the same period last year.
But it's always important to go through the earnings release and hear management's take on it in the accompanying conference call, and there are three key quotes from American Express' Chief Financial Officer, Jeff Campbell, that shed light on how the company is doing and where it is headed.
Strong performance on every front
Our performance this quarter reflected higher spending by our card members, solid growth in loan balances, credit indicators at or near historical lows, disciplined control of operating expenses, and a strong balance sheet that enabled us to return a substantial amount of capital to shareholders, in the form of share repurchases over the past year. Our earnings-per-share growth of 12% outpaced revenue growth, once again reflecting the benefits of disciplined operating expense control, and our share repurchase program.
The reason American Express has had such a strong year in 2014 is thanks to improved performance across every major area. Revenue is up, expenses are down, and were it not for its effective tax rate rising from 31.4% in 2013 to 34.4% in 2014, its results would be even more impressive.
To the benefit of shareholders this rising tax impact has been minimal, because while net income at American Express is up 10%, its earnings per share is up 14% thanks to the fact the company has aggressively repurchased $4 billion worth shares. As a result, its total shares outstanding is down 3%.
Innovation and growth continues
We also made progress on several newer fronts this quarter, attracting additional partners to our OptBlue program, acquiring new card members on our EveryDay product, and participating in the upcoming Apple Pay mobile wallet launch.
As previously noted, one of the more compelling things about American Express is its willingness to adapt in the changing payments landscape. Its various new initiatives have yet to have a meaningful impact to the bottom line of the company, but all signs indicate each of these new initiatives has been met with success.
For example, while Campbell was mum on the measurable results of the OptBlue program -- its effort to ensure its cards are accepted at more small merchants nationwide -- he noted, "we continue to believe that OptBlue will bring incremental volumes onto our network, and provide attractive economics for our business."
While examples like this (without hard data) require some modicum of trust by investors, if a product or initiative is failing, we often don't hear about at all.
Fears can be relieved
As part of our initiatives to have the American Express brand become ever more welcoming and inclusive, we are reaching out to a broader demographic of potential customers. For some of these new card members, the ability to revolve a balance may be a more significant consideration. Importantly, we think we can attract these new customers without significantly changing the overall credit profile of the Company.
And speaking of new products, one that may have caused a slight bit of hesitation was the EveryDay Card, which is a fee-free card launched earlier this year. American Express has long been known for the high quality of its credit profile, so becoming "more welcoming and inclusive," could mean it therefore becomes a riskier investment.
However, Campbell quickly squelched any concern investors may have because he would also go on to say:
We are not changing our credit standards for EveryDay. These customers would generally have qualified for our products, but did not believe we had a card that met their needs. It's still early days for the EveryDay product, but it has performed better than our initial expectations since its launch earlier this year.
Although it is still early, it is good to know its efforts thus far have meant more customers (and therefore more revenue and income) without substantially adding to the risk of the company.
There is a lot to like about American Express, and the third quarter once again proved to be no exception.