Back to top

Image: Bigstock

AmEx (AXP) Q4 Earnings Beat Estimates Sans Tax Reform Charge

Read MoreHide Full Article

American Express Company (AXP - Free Report) reported adjusted earnings per share (EPS) of $1.58, beating the Zacks Consensus Estimate by 2.6%. Earnings witnessed a sharp 74% year-over-year improvement.

Better-than-expected results were mainly backed by growth in card billed business, increase in total cards in force, higher Card Member spending at lower tax rate and the effect of share buyback. The company continues to witness strong loan growth and credit metrics, plus lower operating costs.

The Tax Reform

The company saddled a charge of $2.6 billion on account of estimated taxes on deemed repatriations of certain overseas earnings. The remeasurement of U.S. deferred tax assets and liabilities led to net loss of $1.41 per share compared with net income 88 cents per share a year ago.

This charge has drained American Express’ capital ratio. In order to rebuild the same, the company has put on hold its share buyback plan until the first half of 2018, but has promised to continue paying dividend at the current level.

Over the long haul the company, however, is sanguine about the tax reform and stated that it would invest up to $200 million more in 2018 than originally planned for customer-facing growth initiatives. It also plans to use the anticipated benefits from tax savings to provide more for its employees and shareholders.

American Express Company Price, Consensus and EPS Surprise

Full-Year 2017 Results

Earnings per share were $2.97, down 47% year over year. Sans the impact of the Tax Act, earnings per share were $5.87. The company delivered better than its own expectations. It was in line with the guidance the company offered during its last results (earnings per share of $5.80 to $5.90) and higher than the initial guidance provided at the beginning of the year ($5.60 to $5.80).

Revenues, net of interest expense, for the full year were $33.5 billion, up 4% year over year, driven by record billings and strong loan growth.

Delving Deeper

Revenues came in at $8.84 billion, 1.4% ahead of the Zacks Consensus Estimate of $8.72 billion. Top line increased 10% year over year on higher non-interest income and interest received on loans.

Provisions for losses totaled $833 million, up 33% year over year attributable to growth in the loan portfolio and an escalation in the lending write-off and delinquency rates.

Total expenses of $6.2 billion decreased 1% year over year due to a decline in marketing cost, partly offset by higher rewards’ expenses.

The effective tax rate was 24%, reflecting a fall from 29% in the year-ago quarter. The tax rate decrease primarily reflected the level and geographic mix of earnings as well as discrete tax items.

Total expenses fell 1% year over year to $6.2 billion, primarily due to lower marketing and promotion and professional services expenses.

Segment Results

American Express’ U.S. Consumer Services segment reported net income of $507 million, up 44% year over year. Total revenue, net of interest expense of $3.4 billion, was up 13% year over year, reflecting higher net interest income and Card Member spending.

International Consumer and Network Services’ net income amounted to $199 million, up 137% year over year. Total revenue, net of interest expenses, climbed 7% (on a currency adjusted basis) year over year to $1.5 billion, primarily on the back of higher Card Member spending.

Global Commercial Services’ net income of $580 million rose a good 52% year over year. Total revenues, net of interest expenses, increased 7% year over year to $2.7 billion, primarily reflecting higher Card Member spending.

Global Merchant Services’ net income rose 12% year over year to $413 million in the reported quarter. Total revenues, net of interest expenses, increased 9% year over year to $1.2 billion on higher Card Member spending, partially offset by a lower discount rate.

Corporate and Other reported net loss of $2.9 billion, which compared unfavorably with the net loss of $361 million in the year-ago quarter.

2018 Guidance

The company foresees 2018 earnings per share between $6.90 and $7.30, which represents 20% year over year increase (calculated at the midpoint).

Zacks Rank & Key Picks

American Express carries a Zacks Rank #2 (Buy). Some of these stocks are also poised to beat on earnings in the fourth quarter, owing to their strong Zacks Rank and a positive Earnings ESP.

Discover Financial Services (DFS - Free Report) is expected to report fourth-quarter earnings on Jan 24. It sports a Zacks Rank #1 (Strong Buy) and has an Earnings ESP of +0.04%. You can see the complete list of today’s Zacks #1 Rank stocks here.

CIT Group Inc. is expected to report fourth-quarter earnings on Jan 30. It carries a Zacks Rank #2 and has  an Earnings ESP of +0.04%.

Houlihan Lokey, Inc. (HLI - Free Report) is expected to report fourth-quarter earnings on Jan 29. It carries a Zacks Rank #1 and has an Earnings ESP of +12.73%.

Will You Make a Fortune on the Shift to Electric Cars?
Here's another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.

With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.

It's not the one you think.

See This Ticker Free >>

Published in