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AmEx (AXP) Q4 Earnings Miss on High Client Engagement Costs
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American Express Company (AXP - Free Report) reported fourth-quarter 2023 earnings per share (EPS) of $2.62, which missed the Zacks Consensus Estimate by 1.1%. Nevertheless, the bottom line climbed 27% year over year.
Total revenues net of interest expense amounted to $15.8 billion, which improved 11% year over year in the quarter under review. However, the top line missed the Zacks Consensus Estimate by 1.4%.
The quarterly results suffered due to escalating customer engagement and compensation expenses. Nevertheless, the downside was partly offset by improved net interest income and increased Card Member spending, leading to strong segmental contribution.
American Express Company Price, Consensus and EPS Surprise
Network volumes of $434.4 billion rose 5% year over year in the fourth quarter on the back of higher consumer spending. However, the figure lagged the Zacks Consensus Estimate of $442 billion. Total interest income of $5.6 billion increased 40% year over year and beat the consensus mark of $5.5 billion.
Provision for credit losses escalated 40% year over year to $1.4 billion due to a rise in net write-offs.
Total expenses increased 5% year over year to $11.9 billion due to an elevated customer engagement cost level, which resulted from expanding Card Member spending and higher usage of travel-related benefits.
Segmental Performances
The U.S. Consumer Services segment’s pre-tax income of $1.5 billion advanced 14% year over year in the fourth quarter and beat the Zacks Consensus Estimate of $1.3 billion. Total revenues net of interest expense climbed 13% year over year to $7.4 billion on the back of improved net interest income and higher Card Member spending. The reported figure outpaced the consensus mark of $6.7 billion.
The Commercial Services segment recorded a pre-tax income of $666 million in the quarter under review, which rose 22% year over year but missed the Zacks Consensus Estimate of $676 million. Total revenues net of interest expense amounted to $3.8 billion, which grew 7% year over year on the back of an increase in net interest income. However, the reported figure missed the consensus mark of $3.9 billion.
The International Card Services segment reported a pre-tax income of $144 million in the fourth quarter against the prior-year quarter’s pre-tax loss of $15 million. Total revenues net of interest expense improved 12% year over year to $2.7 billion, missing the consensus mark of $2.8 billion. The year-over-year growth was attributable to expanding Card Member spending and rising card fee revenues.
The Global Merchant and Network Services segment’s pre-tax net income of $822 million advanced 19% year over year in the quarter under review but lagged the Zacks Consensus Estimate of $845 million. Total revenues net of interest expense rose 10% year over year to $1.94 billion on the back of growth in merchant-related revenues. The reported figure beat the consensus mark of $1.91 billion.
Corporate and Other incurred a pre-tax loss of $589 million in the fourth quarter, narrower than the prior-year quarter’s loss of $638 million.
Balance Sheet (as of Dec 31, 2023)
American Express exited the fourth quarter with cash & cash equivalents of $47 billion, which climbed 38% year over year. Total assets of $261 billion grew 14% year over year.
Long-term debt amounted to $48 billion, which increased 12% year over year. Short-term borrowing came in at $1 billion.
Shareholders’ equity of $28 billion improved 12% year over year.
Return on average common equity deteriorated 110 basis points year over year to 33%.
Capital Deployment Update
American Express bought back six million common shares in the fourth quarter of 2023. On Jan 26, 2024, management sanctioned a 17% hike in first-quarter 2024 dividend on common shares outstanding. The increased dividend amounted to 70 cents per share.
2024 Outlook
AXP anticipates revenues to grow between 9% and 11% in 2024 from the 2023 level of $60.5 billion. Management estimates earnings per share in the range of $12.65-$13.15, the mid-point of which indicates an improvement of 15.1% from the 2023 level of $11.21.
Long-Term View Reaffirmed
The company continues to expect revenue growth of more than 10% over the long term, while earnings per share are likely to continue registering mid-teens growth.
Here are some other Finance sector players that have reported fourth-quarter results so far. The bottom-line results of Synchrony Financial (SYF - Free Report) , Ally Financial Inc. (ALLY - Free Report) and State Street Corporation (STT - Free Report) beat the respective Zacks Consensus Estimate.
Synchrony Financial reported fourth-quarter 2023 adjusted EPS of $1.03, which beat the Zacks Consensus Estimate by 7.3%. However, the bottom line declined 18.3% year over year. Net interest income improved 8% year over year to $4.5 billion, beating the consensus mark by 0.3%. Other income amounted to $71 million, which surged 136.7% year over year in the fourth quarter.
Total loan receivables of SYF grew 11.4% year over year to $103 billion. Total deposits were $81.2 billion, which rose 13.1% year over year. Its purchase volume advanced 3% year over year to $49.3 billion in the fourth quarter. Interest and fees on loans of $5.3 billion improved 16.3% year over year. Net interest margin deteriorated 48 basis points year over year to 15.10%. New accounts of 6.2 million slipped 3% year over year.
Ally Financial’s fourth-quarter adjusted earnings of 45 cents per share surpassed the Zacks Consensus Estimate by a penny. However, the bottom line reflects a decline of 58.3% from the year-ago quarter. Total quarterly GAAP net revenues were $2.07 billion, down 6.1% from the prior-year quarter. However, the top line surpassed the Zacks Consensus Estimate of $1.99 billion.
Quarterly net financing revenues of ALLY were down 10.8% from the prior-year quarter to $1.49 billion. The adjusted net interest margin was 3.20%, down 48 basis points year over year. In the reported quarter, the company recorded net charge-offs of $623 million, up 59.7% from the prior-year quarter. As of Dec 31, 2023, total net finance receivables and loans amounted to $135.9 billion, down marginally from the prior-quarter end.
State Street reported fourth-quarter 2023 adjusted earnings of $2.04 per share, which surpassed the Zacks Consensus Estimate of $1.81. The bottom line, however, declined 1.4% from the prior-year quarter. Quarterly total revenues of $3.04 billion declined 3.5% year over year. However, the top line beat the Zacks Consensus Estimate of $2.94 billion.
Net interest revenues were $678 million, down 14.3% year over year. The net interest margin declined 13 basis points to 1.16%. Total fee revenues of STT were relatively stable at $2.37 billion. Provision for credit losses was $20 million, up from $10 million in the prior-year quarter. The return on common equity was 3.1% compared with 11.8% in the year-ago quarter. Assets under management were $4.13 trillion as of Dec 31, 2023, up 18.6% year over year.
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AmEx (AXP) Q4 Earnings Miss on High Client Engagement Costs
American Express Company (AXP - Free Report) reported fourth-quarter 2023 earnings per share (EPS) of $2.62, which missed the Zacks Consensus Estimate by 1.1%. Nevertheless, the bottom line climbed 27% year over year.
Total revenues net of interest expense amounted to $15.8 billion, which improved 11% year over year in the quarter under review. However, the top line missed the Zacks Consensus Estimate by 1.4%.
The quarterly results suffered due to escalating customer engagement and compensation expenses. Nevertheless, the downside was partly offset by improved net interest income and increased Card Member spending, leading to strong segmental contribution.
American Express Company Price, Consensus and EPS Surprise
American Express Company price-consensus-eps-surprise-chart | American Express Company Quote
Q4 Operational Performance
Network volumes of $434.4 billion rose 5% year over year in the fourth quarter on the back of higher consumer spending. However, the figure lagged the Zacks Consensus Estimate of $442 billion. Total interest income of $5.6 billion increased 40% year over year and beat the consensus mark of $5.5 billion.
Provision for credit losses escalated 40% year over year to $1.4 billion due to a rise in net write-offs.
Total expenses increased 5% year over year to $11.9 billion due to an elevated customer engagement cost level, which resulted from expanding Card Member spending and higher usage of travel-related benefits.
Segmental Performances
The U.S. Consumer Services segment’s pre-tax income of $1.5 billion advanced 14% year over year in the fourth quarter and beat the Zacks Consensus Estimate of $1.3 billion. Total revenues net of interest expense climbed 13% year over year to $7.4 billion on the back of improved net interest income and higher Card Member spending. The reported figure outpaced the consensus mark of $6.7 billion.
The Commercial Services segment recorded a pre-tax income of $666 million in the quarter under review, which rose 22% year over year but missed the Zacks Consensus Estimate of $676 million. Total revenues net of interest expense amounted to $3.8 billion, which grew 7% year over year on the back of an increase in net interest income. However, the reported figure missed the consensus mark of $3.9 billion.
The International Card Services segment reported a pre-tax income of $144 million in the fourth quarter against the prior-year quarter’s pre-tax loss of $15 million. Total revenues net of interest expense improved 12% year over year to $2.7 billion, missing the consensus mark of $2.8 billion. The year-over-year growth was attributable to expanding Card Member spending and rising card fee revenues.
The Global Merchant and Network Services segment’s pre-tax net income of $822 million advanced 19% year over year in the quarter under review but lagged the Zacks Consensus Estimate of $845 million. Total revenues net of interest expense rose 10% year over year to $1.94 billion on the back of growth in merchant-related revenues. The reported figure beat the consensus mark of $1.91 billion.
Corporate and Other incurred a pre-tax loss of $589 million in the fourth quarter, narrower than the prior-year quarter’s loss of $638 million.
Balance Sheet (as of Dec 31, 2023)
American Express exited the fourth quarter with cash & cash equivalents of $47 billion, which climbed 38% year over year. Total assets of $261 billion grew 14% year over year.
Long-term debt amounted to $48 billion, which increased 12% year over year. Short-term borrowing came in at $1 billion.
Shareholders’ equity of $28 billion improved 12% year over year.
Return on average common equity deteriorated 110 basis points year over year to 33%.
Capital Deployment Update
American Express bought back six million common shares in the fourth quarter of 2023. On Jan 26, 2024, management sanctioned a 17% hike in first-quarter 2024 dividend on common shares outstanding. The increased dividend amounted to 70 cents per share.
2024 Outlook
AXP anticipates revenues to grow between 9% and 11% in 2024 from the 2023 level of $60.5 billion. Management estimates earnings per share in the range of $12.65-$13.15, the mid-point of which indicates an improvement of 15.1% from the 2023 level of $11.21.
Long-Term View Reaffirmed
The company continues to expect revenue growth of more than 10% over the long term, while earnings per share are likely to continue registering mid-teens growth.
Zacks Rank
American Express currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Performance of Other Finance Sector Players
Here are some other Finance sector players that have reported fourth-quarter results so far. The bottom-line results of Synchrony Financial (SYF - Free Report) , Ally Financial Inc. (ALLY - Free Report) and State Street Corporation (STT - Free Report) beat the respective Zacks Consensus Estimate.
Synchrony Financial reported fourth-quarter 2023 adjusted EPS of $1.03, which beat the Zacks Consensus Estimate by 7.3%. However, the bottom line declined 18.3% year over year. Net interest income improved 8% year over year to $4.5 billion, beating the consensus mark by 0.3%. Other income amounted to $71 million, which surged 136.7% year over year in the fourth quarter.
Total loan receivables of SYF grew 11.4% year over year to $103 billion. Total deposits were $81.2 billion, which rose 13.1% year over year. Its purchase volume advanced 3% year over year to $49.3 billion in the fourth quarter. Interest and fees on loans of $5.3 billion improved 16.3% year over year. Net interest margin deteriorated 48 basis points year over year to 15.10%. New accounts of 6.2 million slipped 3% year over year.
Ally Financial’s fourth-quarter adjusted earnings of 45 cents per share surpassed the Zacks Consensus Estimate by a penny. However, the bottom line reflects a decline of 58.3% from the year-ago quarter. Total quarterly GAAP net revenues were $2.07 billion, down 6.1% from the prior-year quarter. However, the top line surpassed the Zacks Consensus Estimate of $1.99 billion.
Quarterly net financing revenues of ALLY were down 10.8% from the prior-year quarter to $1.49 billion. The adjusted net interest margin was 3.20%, down 48 basis points year over year. In the reported quarter, the company recorded net charge-offs of $623 million, up 59.7% from the prior-year quarter. As of Dec 31, 2023, total net finance receivables and loans amounted to $135.9 billion, down marginally from the prior-quarter end.
State Street reported fourth-quarter 2023 adjusted earnings of $2.04 per share, which surpassed the Zacks Consensus Estimate of $1.81. The bottom line, however, declined 1.4% from the prior-year quarter. Quarterly total revenues of $3.04 billion declined 3.5% year over year. However, the top line beat the Zacks Consensus Estimate of $2.94 billion.
Net interest revenues were $678 million, down 14.3% year over year. The net interest margin declined 13 basis points to 1.16%. Total fee revenues of STT were relatively stable at $2.37 billion. Provision for credit losses was $20 million, up from $10 million in the prior-year quarter. The return on common equity was 3.1% compared with 11.8% in the year-ago quarter. Assets under management were $4.13 trillion as of Dec 31, 2023, up 18.6% year over year.