American Express’ (AXP) net income plunged 85% in the second quarter due to a sharp drop in travel and entertainment spending, and other travel-related revenues as a result of COVID-19.
Total revenue declined 29% to $7.67 billion in the three months ended June 30, while earnings per share fell to 29 cents from $2.07 a year ago. Net income amounted to $257 million in the second quarter compared with $ 1.76 billion a year earlier.
Consolidated loss provisions surged to $1.6 billion from $861 million a year earlier, due to a a reserve build of $628 million in anticipation of a deterioration of the global macroeconomic outlook caused by the coronavirus crisis.
“While certain components of spending are now showing growth, our overall billed business volumes remain down year-over-year, given the significant role that travel and entertainment (T&E) spending has historically played in our business,” said American Express CFO Jeff Campbell. “T&E spending remains down 75% in the first part of July, our non-T&E billings are actually up about 5% so far in July.”
Campbell added that other fees and commissions and other revenues were down almost 50% year-over-year due to declines in travel-related revenue streams such as FX conversion fees, business travel commissions and fees from consumer travel business.
Overall, though the credit card issuer said that spending volumes have been improving gradually since April when they were down about 40% year-over-year to a drop of about 20% in mid-July. Non-T&E spending has been recovering at a faster pace than T&E categories, and small business customers have been the most resilient during the period.
“Despite the significant impacts of the COVID-19 pandemic had in our business, we were profitable in the quarter, and we have very strong capital and liquidity position, and we paid our dividend to our shareholders,” said American Express CEO Steve Squeri.
Shares in AXP have depreciated 23% year-to-date, and analysts have a Hold consensus on the stock’s outlook. This is made up of 9 recent Hold ratings, 3 Sell ratings versus 6 Buy ratings. Meanwhile the $101.71 average analyst price target suggests 6.7% upside potential over the coming year. (See American Express stock analysis on TipRanks).
Compass Point analyst William Ryan has a Hold rating on the shares but earlier this month raised the price target to $85 from $78, saying that he didn’t expect Q2 earnings to generate concern about the sustainability of the company’s dividend.
In light of spending and credit trends, Ryan lowered his 2020 estimate on American Express to $1.48 from $2.
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