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American Express (AXP) Misses on Q4 Earnings, Gives Upbeat View
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American Express Company (AXP - Free Report) reported its fourth-quarter 2022 earnings of $2.07 per share, missing the Zacks Consensus Estimate of $2.18. The bottom line also decreased 5% year over year.
For the quarter under review, AXP’s total revenues net of interest expense increased 17% year over year to $14,176 million. The top line, however, missed the Zacks Consensus Estimate of $14,246 million.
The lower-than-expected fourth-quarter 2022 results were caused by higher operating and customer engagement costs. Weakness in International Card Services and Commercial Services businesses affected profit levels. The negatives were partially offset by continued business momentum, better volumes and higher Card Member spending. AXP added 3 million proprietary cards in the quarter.
The company intends to hike dividends by 15% to 60 cents per share, starting from the first quarter of 2023.
American Express Company Price, Consensus and EPS Surprise
Due to higher spending, network volumes jumped 12% year over year to $413.3 billion in the fourth quarter. Total interest income was $3,965 million in the fourth quarter, up 65% year over year. Provision for credit losses amounted to $1,027 million compared with the year-ago quarter’s figure of $53 million. Setting aside such a huge amount is expected to help the company navigate through a volatile global economy.
Total expenses of $11,278 million increased 15% year over year, primarily due to higher client engagement costs, a significant amount of net loss on Amex Ventures equity investments and higher compensation expenses in the reported quarter.
Segmental Performances
The U.S. Consumer Services segment recorded a pre-tax income of $1,286 million for the fourth quarter, witnessing a marginal increase from $1,281 million a year ago. Total revenues net of interest expense increased to $6,523 million from $5,294 million in the prior-year period, courtesy of a rise in Card Member spending and increased net interest income.
The Commercial Services segment delivered a pre-tax income of $547 million, which decreased 24% from a year ago. Total revenues net of interest expense were $3,557 million, which climbed from $3,091 million, attributable to higher Card Member spending.
The International Card Services segment recorded a pre-tax loss of $15 million for the fourth quarter against a pre-tax income of $40 million a year ago, due to the strengthening U.S. dollar. Total revenues net of interest expense increased to $2,406 million from $2,103 million in the prior-year period, driven by a rise in Card Member spending and higher revenues from foreign exchange conversion fees.
The Global Merchant and Network Services segment reported a pre-tax net income of $691 million, which increased from $475 million in the fourth quarter of 2021. Total revenues net of interest expense increased to $1,758 million from the year-ago figure of $1,467 million, primarily driven by growing network volumes.
Corporate and Other posted a fourth-quarter pre-tax loss of $638 million, which deteriorated from the prior-year pre-tax loss of $207 million, due to a net loss on Amex Ventures equity investments.
Balance Sheet (as of Dec 31, 2022)
American Express exited the fourth quarter with cash & cash equivalents of $34 billion, which increased sequentially from $31 billion. Total assets rose sequentially from $215 million to $228 million.
As of Dec 31, 2022, AXP’s long-term debt was $43 billion, up from $42 billion at the third-quarter end. It also had a short-term borrowing of $1 billion.
Return on average common equity improved to 34.1% from 33.6% in the third quarter.
Outlook
American Express provided 2023 guidance of revenue growth of 15-17% from the 2022 level of $52,862 million. It expects 2023 earnings per share to be within $11-$11.40, up from the 2022 level of $9.85. In the long-term, the company foresees revenue growth of more than 10% and earnings growth in the mid-teens.
The bullish outlook despite economic volatilities highlights the company’s confidence in its business momentum and consumer spending growth. However, it is building provisions and preparing for any potential defaults.
Zacks Rank & Key Picks
American Express currently has a Zacks Rank #4 (Sell).
Chicago, IL-based Cboe Global Markets is one of the largest stock exchange operators by volume in the United States. The Zacks Consensus Estimate for CBOE’s 2022 earnings indicates a 14.2% year-over-year increase.
Headquartered in New York, American International is a leading global insurance organization. The Zacks Consensus Estimate for AIG’s 2022 earnings has increased 1.8% in the past 30 days.
Based in Los Angeles, CA, Ares Capital specializes in rescue financing of middle-market companies. The Zacks Consensus Estimate for ARCC’s 2022 earnings suggests 19.3% year-over-year growth.
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American Express (AXP) Misses on Q4 Earnings, Gives Upbeat View
American Express Company (AXP - Free Report) reported its fourth-quarter 2022 earnings of $2.07 per share, missing the Zacks Consensus Estimate of $2.18. The bottom line also decreased 5% year over year.
For the quarter under review, AXP’s total revenues net of interest expense increased 17% year over year to $14,176 million. The top line, however, missed the Zacks Consensus Estimate of $14,246 million.
The lower-than-expected fourth-quarter 2022 results were caused by higher operating and customer engagement costs. Weakness in International Card Services and Commercial Services businesses affected profit levels. The negatives were partially offset by continued business momentum, better volumes and higher Card Member spending. AXP added 3 million proprietary cards in the quarter.
The company intends to hike dividends by 15% to 60 cents per share, starting from the first quarter of 2023.
American Express Company Price, Consensus and EPS Surprise
American Express Company price-consensus-eps-surprise-chart | American Express Company Quote
Q4 Operational Performance
Due to higher spending, network volumes jumped 12% year over year to $413.3 billion in the fourth quarter. Total interest income was $3,965 million in the fourth quarter, up 65% year over year. Provision for credit losses amounted to $1,027 million compared with the year-ago quarter’s figure of $53 million. Setting aside such a huge amount is expected to help the company navigate through a volatile global economy.
Total expenses of $11,278 million increased 15% year over year, primarily due to higher client engagement costs, a significant amount of net loss on Amex Ventures equity investments and higher compensation expenses in the reported quarter.
Segmental Performances
The U.S. Consumer Services segment recorded a pre-tax income of $1,286 million for the fourth quarter, witnessing a marginal increase from $1,281 million a year ago. Total revenues net of interest expense increased to $6,523 million from $5,294 million in the prior-year period, courtesy of a rise in Card Member spending and increased net interest income.
The Commercial Services segment delivered a pre-tax income of $547 million, which decreased 24% from a year ago. Total revenues net of interest expense were $3,557 million, which climbed from $3,091 million, attributable to higher Card Member spending.
The International Card Services segment recorded a pre-tax loss of $15 million for the fourth quarter against a pre-tax income of $40 million a year ago, due to the strengthening U.S. dollar. Total revenues net of interest expense increased to $2,406 million from $2,103 million in the prior-year period, driven by a rise in Card Member spending and higher revenues from foreign exchange conversion fees.
The Global Merchant and Network Services segment reported a pre-tax net income of $691 million, which increased from $475 million in the fourth quarter of 2021. Total revenues net of interest expense increased to $1,758 million from the year-ago figure of $1,467 million, primarily driven by growing network volumes.
Corporate and Other posted a fourth-quarter pre-tax loss of $638 million, which deteriorated from the prior-year pre-tax loss of $207 million, due to a net loss on Amex Ventures equity investments.
Balance Sheet (as of Dec 31, 2022)
American Express exited the fourth quarter with cash & cash equivalents of $34 billion, which increased sequentially from $31 billion. Total assets rose sequentially from $215 million to $228 million.
As of Dec 31, 2022, AXP’s long-term debt was $43 billion, up from $42 billion at the third-quarter end. It also had a short-term borrowing of $1 billion.
Return on average common equity improved to 34.1% from 33.6% in the third quarter.
Outlook
American Express provided 2023 guidance of revenue growth of 15-17% from the 2022 level of $52,862 million. It expects 2023 earnings per share to be within $11-$11.40, up from the 2022 level of $9.85. In the long-term, the company foresees revenue growth of more than 10% and earnings growth in the mid-teens.
The bullish outlook despite economic volatilities highlights the company’s confidence in its business momentum and consumer spending growth. However, it is building provisions and preparing for any potential defaults.
Zacks Rank & Key Picks
American Express currently has a Zacks Rank #4 (Sell).
Some better-ranked stocks in the broader finance space are Cboe Global Markets, Inc. (CBOE - Free Report) , American International Group, Inc. (AIG - Free Report) and Ares Capital Corporation (ARCC - Free Report) , each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Chicago, IL-based Cboe Global Markets is one of the largest stock exchange operators by volume in the United States. The Zacks Consensus Estimate for CBOE’s 2022 earnings indicates a 14.2% year-over-year increase.
Headquartered in New York, American International is a leading global insurance organization. The Zacks Consensus Estimate for AIG’s 2022 earnings has increased 1.8% in the past 30 days.
Based in Los Angeles, CA, Ares Capital specializes in rescue financing of middle-market companies. The Zacks Consensus Estimate for ARCC’s 2022 earnings suggests 19.3% year-over-year growth.