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American Express (AXP) Q4 Earnings Lag, 2017 View Raised
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Shares of American Express Company (AXP - Free Report) fell 1.6% in the after-market trading, following the release of its fourth-quarter 2016 results. Adjusted earnings per share (EPS) of 91 cents missed the Zacks Consensus Estimate of 98 cents per share.
Net income attributable to common shareholders came in at $825 million or 88 cents per share in the reported quarter, down from $899 million or 89 cents per share in the prior-year quarter.
Lower -than-expected results were mainly due to higher provisions and substantial increase in marketing and promotion expenses. Also, results were hurt from the loss of the partnership with Costco Wholesale Corp. However, on a positive note, adjusted revenues increased.
For full-year 2016, the company’s adjusted EPS of $5.93 beat the Zacks Consensus Estimate of $5.75. Net income attributable to common shareholders was $5.41 billion or $5.65 per share, up from $5.16 billion or $5.05 per share per share in the prior year.
Notably, the company expects EPS for 2017 in the range of $5.60–$5.80. This reflects an increase from its prior guidance of at least $5.60.
Performance in Detail
American Express reported revenues of $32.12 billion for full-year 2016, surpassing the Zacks Consensus Estimate of $32.04 billion. However, revenues declined 2% year over year.
For fourth-quarter 2016, revenues of $8.02 billion came ahead of the Zacks Consensus Estimate of $7.94 billion. However, revenues were down 4% year over year, stemmed by a decline in both non-interest income as well as net interest income.
Notably, excluding Costco-related business and the effect of foreign exchange rates owing to the impact of a stronger U.S. dollar on international operations during the quarter, adjusted revenues climbed 6% driven by higher adjusted Card Member spending and adjusted net interest income.
American Express' card billed business was $263.2 billion, 4% lower year over year. Cards used worldwide declined 7% year over year to 109.9 billion.
Provisions for losses totaled $625 million, up 9% year over year. Adjusted provisions for losses climbed 20%, mainly reflecting higher loan growth and a small increase in both lending delinquency and net write-off rates.
Total expenses of $6.24 billion dipped 2% year over year. Though card member rewards, professional service and other expense declined, the reported quarter includes significant rise in investment spending on the company’s growth initiatives and a restructuring charge.
The effective tax rate was 29%, decreasing from 38% in the year-ago quarter.
Segment Results
American Express’ U.S. Consumer Services segment reported net income of $351 million in fourth-quarter 2016, plunging 35% year over year. Total revenue, net of interest expenses, declined 10% year over year to $3.03 billion. Notably, the year-ago period included Costco-related revenues, provisions and expenses.
International Consumer and Network Services’ net income amounted to $84 million, slumping 40% year over year mainly due to increased investment spending on growth initiatives. Total revenue, net of interest expenses, increased 2% year over year to $1.38 billion, primarily driven by higher Card Member spending.
Global Commercial Services’ net income of $382 million plummeted 22% year over year. Total revenue, net of interest expenses, was up 1% year over year to $2.49 billion.
Global Merchant Services’ net income inched up 1% year over year to $369 million in the reported quarter. Total revenue, net of interest expenses, was down 7% year over year to $1.12 billion. The prior-year quarter included Costco-related revenues.
Corporate and Other reported net loss of $361 million compared with net loss of $633 million in the year-ago quarter.
Financial Update
As of Dec 31, 2016, American Express’ total assets were down 1% year over year to $159 billion, while long-term debt decreased 2% year over year to $47 billion. At the quarter end, card member receivables and loans (net of reserves) were $47 billion and $64 billion, respectively, reflecting a rise of 7% and 10% on a year over year basis.
The company held cash and cash equivalents of $25 billion, up 9% year over year. Shareholders' equity of $21 billion remained unchanged year over year.
American Express' return on average common equity (ROCE) was 27.5% as of Dec 31, 2016, up from 25.2% as of Dec 31, 2015.
Our Take
Results for the quarter do not reflect a strong performance of the company. However, strength in its consumer business and international business growth should continue to support growth.
Going forward, we expect to see a favorable earnings performance from the company given that it will continue with its elevated spending on growth initiatives. Its efforts toward reducing the cost base will further support the bottom line.
American Express Co. Price, Consensus and EPS Surprise
Among other firms in the finance space, Capital One Financial Corporation (COF - Free Report) and Discover Financial Services (DFS - Free Report) are expected to release results on Jan 24, while Ally Financial Inc. (ALLY - Free Report) is slated to report on Jan 31.
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Today, you are invited to download the full list of 220 Zacks Rank #1 ""Strong Buy"" stocks – absolutely free of charge. Since 1988, Zacks Rank #1 stocks have nearly tripled the market, with average gains of +26% per year. Plus, you can access the list of portfolio-killing Zacks Rank #5 ""Strong Sells"" and other private research. See these stocks free >>
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American Express (AXP) Q4 Earnings Lag, 2017 View Raised
Shares of American Express Company (AXP - Free Report) fell 1.6% in the after-market trading, following the release of its fourth-quarter 2016 results. Adjusted earnings per share (EPS) of 91 cents missed the Zacks Consensus Estimate of 98 cents per share.
Net income attributable to common shareholders came in at $825 million or 88 cents per share in the reported quarter, down from $899 million or 89 cents per share in the prior-year quarter.
Lower -than-expected results were mainly due to higher provisions and substantial increase in marketing and promotion expenses. Also, results were hurt from the loss of the partnership with Costco Wholesale Corp. However, on a positive note, adjusted revenues increased.
For full-year 2016, the company’s adjusted EPS of $5.93 beat the Zacks Consensus Estimate of $5.75. Net income attributable to common shareholders was $5.41 billion or $5.65 per share, up from $5.16 billion or $5.05 per share per share in the prior year.
Notably, the company expects EPS for 2017 in the range of $5.60–$5.80. This reflects an increase from its prior guidance of at least $5.60.
Performance in Detail
American Express reported revenues of $32.12 billion for full-year 2016, surpassing the Zacks Consensus Estimate of $32.04 billion. However, revenues declined 2% year over year.
For fourth-quarter 2016, revenues of $8.02 billion came ahead of the Zacks Consensus Estimate of $7.94 billion. However, revenues were down 4% year over year, stemmed by a decline in both non-interest income as well as net interest income.
Notably, excluding Costco-related business and the effect of foreign exchange rates owing to the impact of a stronger U.S. dollar on international operations during the quarter, adjusted revenues climbed 6% driven by higher adjusted Card Member spending and adjusted net interest income.
American Express' card billed business was $263.2 billion, 4% lower year over year. Cards used worldwide declined 7% year over year to 109.9 billion.
Provisions for losses totaled $625 million, up 9% year over year. Adjusted provisions for losses climbed 20%, mainly reflecting higher loan growth and a small increase in both lending delinquency and net write-off rates.
Total expenses of $6.24 billion dipped 2% year over year. Though card member rewards, professional service and other expense declined, the reported quarter includes significant rise in investment spending on the company’s growth initiatives and a restructuring charge.
The effective tax rate was 29%, decreasing from 38% in the year-ago quarter.
Segment Results
American Express’ U.S. Consumer Services segment reported net income of $351 million in fourth-quarter 2016, plunging 35% year over year. Total revenue, net of interest expenses, declined 10% year over year to $3.03 billion. Notably, the year-ago period included Costco-related revenues, provisions and expenses.
International Consumer and Network Services’ net income amounted to $84 million, slumping 40% year over year mainly due to increased investment spending on growth initiatives. Total revenue, net of interest expenses, increased 2% year over year to $1.38 billion, primarily driven by higher Card Member spending.
Global Commercial Services’ net income of $382 million plummeted 22% year over year. Total revenue, net of interest expenses, was up 1% year over year to $2.49 billion.
Global Merchant Services’ net income inched up 1% year over year to $369 million in the reported quarter. Total revenue, net of interest expenses, was down 7% year over year to $1.12 billion. The prior-year quarter included Costco-related revenues.
Corporate and Other reported net loss of $361 million compared with net loss of $633 million in the year-ago quarter.
Financial Update
As of Dec 31, 2016, American Express’ total assets were down 1% year over year to $159 billion, while long-term debt decreased 2% year over year to $47 billion. At the quarter end, card member receivables and loans (net of reserves) were $47 billion and $64 billion, respectively, reflecting a rise of 7% and 10% on a year over year basis.
The company held cash and cash equivalents of $25 billion, up 9% year over year. Shareholders' equity of $21 billion remained unchanged year over year.
American Express' return on average common equity (ROCE) was 27.5% as of Dec 31, 2016, up from 25.2% as of Dec 31, 2015.
Our Take
Results for the quarter do not reflect a strong performance of the company. However, strength in its consumer business and international business growth should continue to support growth.
Going forward, we expect to see a favorable earnings performance from the company given that it will continue with its elevated spending on growth initiatives. Its efforts toward reducing the cost base will further support the bottom line.
American Express Co. Price, Consensus and EPS Surprise
American Express Co. Price, Consensus and EPS Surprise | American Express Co. Quote
American Express carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Among other firms in the finance space, Capital One Financial Corporation (COF - Free Report) and Discover Financial Services (DFS - Free Report) are expected to release results on Jan 24, while Ally Financial Inc. (ALLY - Free Report) is slated to report on Jan 31.
The Best Place to Start Your Stock Search
Today, you are invited to download the full list of 220 Zacks Rank #1 ""Strong Buy"" stocks – absolutely free of charge. Since 1988, Zacks Rank #1 stocks have nearly tripled the market, with average gains of +26% per year. Plus, you can access the list of portfolio-killing Zacks Rank #5 ""Strong Sells"" and other private research. See these stocks free >>