American Express reported quarterly earnings a couple of weeks ago and investors roundly booed, sending the share price down 5%. Having had some time to digest the details, I think the reaction is unfair.
Going into the quarter, the issues surrounding the company were well known. Front and center was the ongoing transition away from being the exclusive credit card accepted at Costco Wholesale. The other unusual factor impacting earnings was the stronger US Dollar, an issue that has been so prevalent with global consumer companies that I can’t possibly fathom it catching anyone off guard.
Despite these headwinds, the company managed to limit its decline in revenue to 1%. The company cannot do a single thing about a stronger USD—and the negative impact from the currency in no way reflected a fall off in Amex’s transaction volumes or commercial activity. If the USD were at the same rate it was a year ago, revenue would have actually risen 3%.
I think that is a rather laudable achievement given Amex is losing one of its biggest pools of customers. Of course, they will need to increase their marketing to fill the hole left by Costco; and indeed, expenses were up in the quarter. But that investment seemed to pay off as US cardholders increased at a pace far above average.
There’s no doubt Amex faces a bumpy road over the next 12-14 months. But all things considered, they appear to be treading water while setting themselves up for a better long-term future.
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