American Express’ second-quarter commercial card-billed
business volume continued what CFO Jeffrey Campbell called a “sequential decline
in growth.” Campbell told analysts during a Wednesday earnings call that the
slower spending owed primarily to several United States-based corporate
customers, similar to the first
quarter, as well as airlines' reduced need for a fuel-buying product.
American Express Global Commercial Services, the division
that houses corporate cards, reported $46.4 billion in card-billed volume for the
second quarter, a 3 percent year-over-year decline. On a foreign exchange-adjusted
basis, this represented 2 percent growth, down from 4 percent growth in the
first quarter. GCS net income also declined 64 percent year over year to $203
million.
“There was a sequential decline from Q1 to Q2,” Campbell
said. “We’ve really scrubbed all our customer base and can say it’s U.S-driven.
… It’s very broadly spread in terms of a slowdown in just the organic-growth spending
trends among midsize and larger clients. It’s T&E oriented. You can draw
different conclusions on that. Is it companies tightening T&E budgets as
they think about the economic environment? A bit of fare pressure on airlines?
We have lots of theories, but those are the facts as we see them.”
Additionally, as more airlines find themselves “flush with
cash,” they have less of a need for solutions like Amex’s fuel-buying product,
which aids cash flow, according to Campbell. “The decline relates to one
product—with actually maybe one large customer—it’s an airline fuel-buying
product, a very low margin buying product.”
GCS revenue net of interest totaled $881 million, a 31
percent year-over-year decline. GCS cards in force and average spending per
card each declined 1 percent year over year, to 6.9 million and $6,739,
respectively.
Companywide, Amex's second-quarter net income declined to
$1.47 billion from $1.53 billion year over year, which Amex attributed to a
stronger U.S. dollar on international operations, as well as the spinoff of its
business travel operations into a joint
venture. Consolidated total revenue net of interest declined 4 percent year
over year to $8.3 billion.
Regarding the Department of Justice’s victory in a lawsuit against
Amex’s merchant steering rules, Campbell said the company is fulfilling the court's order. Amex
continually has said it will appeal the judge’s decision. “One part of the
process is notifying all the merchants of their right to steer. … There are
other aspects to it, but that’s the most important part,” he told analysts. “In
the longer term, we will have to see how the marketplace reacts to the order
and think about what impact that’s going to have on the business model.”
While Amex is exempt from the European Union’s cap on card interchange
fees, Campbell said there is always an impact on Amex’s business. “When you
look at the EU regulation … it certainly confirms our view that most of the
reforms are targeted at addressing concerns around Visa and MasterCard’s
interchange practices,” Campbell said. “The reality is, there are always
impacts in these situations on our business, some of which can create
challenges for us—in particular, the fact that there are some new crossborder
dynamics that are putting some pressure on discount rates in Europe.”
He said Amex is “working hard” to manage some of the
negative impacts of the regulations while finding creative ways to add more
value to its merchants and cardholders.