American Express later this quarter will take restructuring charges and implement a "reengineering program." Company executives speaking Monday on a conference call with financial analysts did not describe which areas of the company would be affected by reductions; the firm reported that growth is slowing for its business travel and commercial card units.
"While we continued to generate a substantial level of earnings this quarter, bottom-line results were down from a year ago as growth in cardmember spending slowed, lending volumes moderated, and we set aside significant additions to our loan loss reserves," according to a prepared statement by chairman and chief executive officer Kenneth Chenault. "We saw clear signs earlier this year of a weakening environment and the recent volatility in the financial markets has reinforced our view that consumer and business sentiment is likely to deteriorate further, translating into weaker economies around the globe well into 2009. Against this backdrop, we are moving ahead with reengineering plans that will free up resources by reducing operating costs and staffing levels. We expect to complete aspects of this work shortly and ... to recognize a restructuring-related charge in the fourth quarter to cover the costs of these actions."
Global corporate travel sales rose to $5.1 billion during the quarter ending Sept. 30, representing a 4 percent year-over-year increase compared with the June period's 17 percent year-over-year rise. On commercial cards, billed business rose 7 percent (adjusted for currency), compared with a 10 percent year-over-year increase in the second quarter.
Total cards in force grew 3 percent to 7 million in the September period, while average basic cardmember spending grew 5 percent to $4,611.
The global commercial services (GCS) division that includes corporate cards and American Express Business Travel reported net earnings of $134 million, compared with $135 million a year earlier, on 13 percent higher revenue of $1.2 billion.
Overall, American Express Company earned $815 million during the third quarter, down 24 percent from the same period in 2007.
"Through a combination of cost reductions and revenue-building actions, we expect to be able to free up a significant amount of resources that would be available to earnings starting in early 2009," said Chenault during the conference call. "We will continue to invest in longer-term, business-building actions and programs, but we're going to be very selective with our investment dollars in this environment. Our intent is to be in the strongest possible position to weather an unsettled economy that will be with us well into 2009."
Executives declined to offer details on the cost-cutting programs. "We have not completed all of the work on what programs we are going to institute," said CFO Dan Henry. "Once we do have those plans finalized, which we think will be in the near term in the fourth quarter, we will make an announcement in terms of what the reserve amount will be as well as the anticipated savings that will be generated through the restructuring program. They will be very important in terms of enabling us to generate earnings and capital. Our reengineering also has elements that are looking at costs, whether they be the structure that we have currently in terms of our employee contingent or whether it's looking at processes."
"There's a strong focus on expenses," Chenault added. "There are adjustments we can make in our expense structure not just to deal with 2009, but in fact to have a business model that allows us to compete in a more effective way on a multi-year basis."
Overall for Amex, human resources expenses rose 7 percent in the quarter to nearly $1.5 billion, while GCS human resources and other operating expenses grew by almost 12 percent, to $836 million. Within GCS, Amex increased provisions for losses by 43 percent as it detected a slowdown in payments. The net loss ratio as a percentage of charge volume rose to 0.15 percent from 0.11 percent a year earlier, and the share of receivables 90 days past due rose to 1.8 percent from 1.6 percent in both the June 2008 and September 2007 quarters.
Meanwhile, overall travel and entertainment card spending in the September quarter grew 2 percent. "U.S. airline-related volume, which represented approximately 9 percent of total U.S. volumes during the quarter, increased 6 percent due to a 6 percent increase in the average airline charge while transactions were flat," according to the company. "Worldwide airline volumes, which represented approximately 11 percent of total volumes during the quarter, increased 5 percent on 2 percent growth in transactions and a 3 percent increase in the average airline charge."