American Express Management Discusses Q4 2012 Results - Earnings Call Transcript
January 17, 2013 8:50 PM ET
American Express (AXP)
Q4 2012 Earnings Call
January 17, 2013 5:00 pm ET
Daniel T. Henry - Chief Financial Officer, Executive Vice President and Member of Operating Committee
Bill Carcache - Nomura Securities Co. Ltd., Research Division
Robert P. Napoli - William Blair & Company L.L.C., Research Division
Sanjay Sakhrani - Keefe, Bruyette, & Woods, Inc., Research Division
Christopher R. Donat - Sandler O'Neill + Partners, L.P., Research Division
Mark C. DeVries - Barclays Capital, Research Division
Ladies and gentlemen, thank you for standing by. Welcome to the American Express Fourth Quarter 2012 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded. I would now like to turn the conference over to our host, Mr. Rick Petrino. Please go ahead.
Thank you, and thanks to everyone for joining us for our Q4 discussion again. The discussion today contains certain forward-looking statements about the company's future financial performance and business prospects, which are subject to risks and uncertainties and speak only as of today. The words believe, expect, anticipate, estimate, optimistic, intend, plan, aim, will, should, could, likely and similar expressions are intended to identify forward-looking statements. Factors that could cause actual results to differ materially from these forward-looking statements, including the company's financial and other goals, are set forth within today's earnings press release and earnings supplement, which were filed in an 8-K report and in the company's 2011 10-K and Q1, 2 and 3 2012 Form 10-Q reports already on file with the SEC.
The discussion today also contains certain non-GAAP financial measures. Information relating to comparable GAAP financial measures may be found in the fourth quarter 2012 earnings release, earnings supplement and presentation slides, as well as the earnings materials for the prior period that may be discussed, all of which are posted on our website at ir.americanexpress.com. We encourage you to review that information in conjunction with today's discussion.
Today's discussion will begin with Dan Henry, Executive Vice President and CFO, who will review some key points related to the quarter's earnings through the series of slides included with the earnings documents distributed and provide some brief summary comments. Once Dan completes his remarks, we will move to Q&A. With that, let me turn the discussion over to Dan.
Daniel T. Henry
Okay. Thanks, Rick, and I'll start on Slide 2. So this is the fourth quarter summary of financial performance. So revenues came in at $8.1 billion, up 5% both on a reported and FX basis. If you exclude the $93 million of cardmember reimbursements that are counter revenues, revenues would have grown 6%.
Net income came in at $637 million. That's $0.56 of EPS. If you exclude the restructuring charge, MR reserve and cardmember reimbursements that we discussed last week, adjusted EPS would be $1.09. ROE was 23%. If you adjust it for the same 3 items I just mentioned, it would have been 26% for the fourth quarter. And you can see shares are declining, reflecting our repurchases.
Moving to Slide 3. So this is a reconciliation from net income of $637 million down to income of $1.2 billion, which relates to the $1.09. So the first item here is the restructuring charge, and restructuring is part of staying ahead of the curve. It is designed to contain operating expenses and free up resources for growth initiatives. Our core business results continue to show the benefits of growth investments we've made over the last several years. We have increased share in a very competitive U.S. industry, improved risk management capabilities and introduced innovative products. We believe these fourth quarter actions will make our cost structure leaner and more efficient. Our aim is to grow operating expense less than 3% in both 2013 and 2014, freeing up funds to reinvest back into the many growth opportunities we have across the business, be it our core products, prepaid or mobile.
Next is the Membership Rewards expense related to the refinement in the estimated ultimate redemption rate in the U.S. And third is cardmember reimbursements for issues that go back several years. The line items in the statement of income that these items are reflected on is clearly laid out on a chart in our 2012 fourth quarter earnings supplement.
Moving to Slide 4. So this is the only slide we have on full year 2012. You can see revenues came in at $31.5 billion, up 5% or 6% on an FX-adjusted basis. Net income was $4.4 billion. That relates to EPS of $3.89. If we were to adjust for the items that I discussed before, adjusted EPS would be $4.40. And you can see the lower shares reflect the repurchase of 69 million shares during the year and the issuance of 10 million shares under employee plans.
Moving to Slide 5. So these are our fourth quarter metrics. So billed business was $235 billion in the fourth quarter. That's up 8% from last year or 7% on an FX-adjusted basis. In the third quarter, reported growth was 6% or 8% on an FX-adjusted basis. So billed business growth, very similar in the fourth quarter to what we saw in the third quarter. And our billings growth continues to be toward the upper end of the range among our large issuing competitors.
Cards in force and average basic cardmember spending growth also are similar to the third quarter. We grew proprietary cards 3% in this quarter. Cardmember loans growth was down slightly from the 6% we had in the third quarter to 4% in the fourth quarter.
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