Earnings Preview: Amex 2Q income seen declining
NEW YORK—American Express is expected to report a drop in earnings for the second quarter because the affluent customers that typically use its cards are expected to have curtailed their spending because of gyrations in the stock markets during the quarter.
The credit card company will report its results after the stock markets close on Wednesday.
WHAT TO WATCH FOR: Overall, American Express has done well after the recession, as affluent shoppers have spent freely. That's because Amex cardholders are in general about a third more affluent than other credit cardholders.
However, investors fear that the big swings in the stock market in the three months ended June 30 might have curbed spending among the wealthy. According to Citi Research the affluent account for about nine-tenths of stock owners in the country and are the most impacted by stock market volatility.
Also high-end retail stores like Nordstrom and Saks saw a slowdown in April and May, though sales rebounded in June.
Overall, the expectation is that amount that customers charged on their Amex cards also fell.
Another factor that will hurt American Express results is the strong dollar, because the company's earnings in other countries will fall in value when converted to the dollar. Barclays Capital analyst Mark DeVries notes that the euro declined 11 percent, and the British pound declined 3 percent in the quarter.
DeVries said about 34 percent of the bills that are paid in American Express cards are overseas.
Another worry for American Express is the recent litigation settlement between stores and rival credit card processors MasterCard and Visa. As part of the settlement, stores can now charge consumers an additional fee to use a credit card. Analysts fear that this would shift customers from all credit cards into cash or checks.
WHY IT MATTERS: American Express is one of the world's largest credit card companies. The health of its business provides a picture of the health of the affluent consumer. That's important because according to Citi Research, high-income consumers account for about half of all spending in the U.S.
WHAT'S EXPECTED: Analysts, on average, expect earnings of $1.28 billion, or $1.10 per share, on revenue of $8 billion, according to FactSet.
LAST YEAR'S QUARTER: American Express earned $1.33 billion, or $1.07 per share, on revenue of $7.62 billion.