Banking, finance, and taxes

American Express Slips Despite Solid Earnings Beat

Chris Lange

Published: January 18, 2018 4:24 pm

Last Updated: January 12, 2020 4:21 am

American Express Co. (NYSE: AXP) reported its most recent quarterly results after markets closed Thursday. The company said that it had $1.58 in earnings per share (EPS) and $8.84 billion in revenue, compared with consensus estimates from Thomson Reuters that called for $1.54 in EPS and $8.72 billion in revenue. The fourth quarter from last year had $0.88 in EPS and $8.02 billion in revenue.

During this quarter, the company received a substantial charge related to the Tax Act. The $2.6 billion charge represents the current estimate of taxes on deemed repatriations of certain overseas earnings and the remeasurement of U.S. deferred tax assets and liabilities. For 2018, the company expects an effective U.S. tax rate of roughly 22% before discrete tax items.

Consolidated provisions for losses were up 33% to $833 million, from $625 million a year ago. The rise primarily reflected strong growth in the loan portfolio and an increase in the lending write-off and delinquency rates.

In terms of its segments, the company reported:

• U.S. Consumer Services reported fourth-quarter net income of $507 million, up 44 percent from $351 million a year ago.
• International Consumer and Network Services reported fourth-quarter net income of $199 million, up from $84 million a year ago.
• Global Commercial Services reported fourth-quarter net income of $580 million, up 52 percent from $382 million a year ago.
• Global Merchant Services reported fourth-quarter net income of $413 million, up 12 percent from $369 million a year ago.
• Corporate and Other reported fourth-quarter net loss of $2.9 billion compared with net loss of $361 million a year ago, reflecting the impacts related to the Tax Act.

Looking ahead to 2018, the company expects to see EPS in the range of $6.90 to $7.30, with the midpoint of this range representing about a 20% increase from 2017 earnings. This also excludes the impact of the Tax Act.

Kenneth I. Chenault, Chairman and CEO, commented on Tax Reform:

Overall, we believe the Tax Act will be a positive development for both the U.S. economy and American Express. Given the momentum in the business and the anticipated benefit of a lower tax rate, we now expect to invest up to $200 million more in 2018 than we originally planned for customer-facing growth initiatives. We’ve also made an incremental contribution to our employee profit-sharing plans to support the long-term financial well-being of our employees. And, for shareholders, we expect to use the remaining anticipated benefits to build capital and support earnings growth in 2018.

Shares of Amex closed Thursday at $99.89, with a consensus analyst price target of $106.12 and a 52-week range of $75.39 to $102.39. Following the announcement the stock was initially down 2% at $97.77 in the after-hours trading session.