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American Express (AXP) Q4 Earnings Lag Estimates, Stock Down

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American Express Company’s (AXP - Free Report) adjusted earnings per share of $1.80 missed the Zacks Consensus Estimate by 3.33% in fourth-quarter 2018.

However, the bottom line witnessed a 10.1% year-over-year improvement.
Lower-than-expected spending on cards led to the earnings miss.
After the earnings miss, the stock was down 2.2% in after-hour trading.

American Express Company Price, Consensus and EPS Surprise


Delving Deeper

Revenues (net of interest expenses) were $10.5 billion, missing the Zacks Consensus Estimate by 0.8%. The top line increased 8% year over year, driven by higher loan volumes, and an increase in Card Member spending and fees. Excluding the effect of foreign exchange rates, adjusted revenues, net of interest expenses, grew 10%.

Provisions for loss totaled $954 million, up 14% year over year, which was attributable to growth in loan and an increase in higher write-offs.

Total expenses of $7.7 billion increased 9% year over year due to higher reward expenses and other customer engagement costs, partly offset by lower operating expenses.

Strong Segmental Results

American Express’ Global Consumer Services segment reported net income of $702 million, up 13% year over year. Total revenues, net of interest expenses of $5.6 billion, were up 11% year over year, reflecting higher loans and Card Member spending as well as fee income.

Global Commercial Services’ net income of $624 million was up 15% year over year. Total revenues, net of interest expenses, increased 8% year over year to $3.3 billion, primarily reflecting higher Card Member spending.

Global Merchant and Network Services’ net income rose 9% year over year to $501 million in the reported quarter. Total revenues, net of interest expenses, remained stable year over year at $1.6 billion on higher Card Member spending, partially offset by an expected decrease in the average discount rate and lower revenues from network partners.

Corporate and Other reported net income of $183 million against net loss of $2.8 billion recorded in the year-ago quarter.

Updates 2019 Guidance

Citing a mixed political and economic environment in 2019, the company provided earnings guidance of $7.85 to $8.35 per share and revenue growth between 8% and 10%.

Out Take

We expect the company’s top line to remain under pressure owing to stiff competition. The company expects revenue increase of 8-10% for 2019, which reflects that revenue growth will remain essentially unchanged from 9% increase that the company achieved in 2018. Moreover, it will continue to witness an increase in reward expenses to attract more customers as competition increased. Nevertheless, the company’s expansion in premium consumer space, strong position in commercial payments and strengthening of global integrated network to provide unique value investment in the digital platform will drive growth.

Zacks Rank

American Express currently carries a Zacks Rank #3 (Hold).

Another company Visa Inc. (V - Free Report) , with an Earnings ESP of +1.20% and a Zacks Rank of 3, looks fairly poised to deliver an earnings beat in first-quarter fiscal 2019 (quarter ended December 2018).

Stocks to Consider

Some better-ranked stocks are CIT Group Inc. (CIT - Free Report) and Federated National Holding Company (FNHC - Free Report) , both currently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

CIT Group beat estimates in two of the four quarters, the average positive surprise being 0.23%.

Federated National surpassed estimates in each of the four reported quarters, the average positive surprise being 44.9%.


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