Source: PaxForex Premium Analytics Portal, Fundamental Insight
Companies have been affected by the pandemic in different ways, some for the better and some for the worse. The financial industry as a whole has been affected by lower interest rates, but those with strong credit card arm have been further affected by lower consumer spending and high loss provisions.
American Express (NYSE: AXP) was not left out, but the company is also in a unique situation, given its differentiated business model and customers. At the end of the first quarter, when the impact of the pandemic was the worst and the only thing businesses could rely on was uncertainty, American Express introduced four priorities for the year: supporting the workforce, protecting customers and the brand, maintaining a focus on growth and maintaining a healthy financial position. Recently the company announced second-quarter revenue; Stephen Squeri, the CEO, spoke about how American Express met those targets.
Net earnings were better than expected, at $257 million, despite an overall slowdown in costs and earnings per share of $0.29. Nevertheless, all-expense categories show improvement, even though some of them are still lower than last year. As of July, non-travel and entertainment expenses rose 5%, despite a 75% year-on-year decline in travel and entertainment expenses. As usual, membership fees provide some cushion against losses, gaining 15% of income.
Revenues rose between April and June, along with the economy showing signs of recovery as customers begin to show purchasing power after tough quarantine measures. While the numbers are showing a decline, Squeri emphasized that revenue was rising during the quarter. Customer satisfaction was rising year on year and resource depletion was not above average.
To survive the crisis, American Express has increased liquidity to record levels. The quarter ended with $1.6 billion in reserves for losses and $62 billion in reserves.
The company staked its efforts on solving current problems. As familiar expenses changed, American Express adjusted its compensation program to reflect new shopping trends. The company offers promotions in categories that are in demand, such as wireless, food, streaming, and food delivery. It has increased the number of participants in these high value-added categories. It has also focused on its small business membership through the Shop Small campaign, to which it has allocated $200 million to encourage small business spending.
As the pandemic spread, American Express created a CPR program to help pay for customers, as well as a deeper program for those who needed more time to repay their loan obligations and the loans themselves. As of the end of the second quarter, three-quarters of the pandemic assistance program had returned to pay their bills.
The company announced the resumption of relationships with British Airways and Marriott hotels. On the commercial side, the company saw increased demand for online shopping. The company has expanded contactless payment capabilities and is expanding digital payment solutions such as click-to-pay for secure transactions.
The big win for the company is that it was the first foreign payment network to license local currency transactions in mainland China.
American Express reported profits in a very slow period and maintained its dividends, unlike some other financial services companies. The company has a strong cash position and is focused on meeting new requirements and behaviors that focus on future growth. The company's share price fell by about 24% and its 12-month earnings-to-income ratio was about 19, which is an excellent indicator for the company.