Yesterday, American Express Company (AXP - Analyst Report) announced its preliminary results for the fourth quarter of 2012. According to the results, net income was $1.2 billion or $1.09 per share in the quarter compared with $1.2 billion or $1.01 per share in the year-ago quarter. Net income surpassed the Zacks Consensus Estimate of $1.05 per share.
Net income for the fourth quarter of 2012 excludes the impact of a $400 million restructuring charge ($287 million after-tax), expense of $342 million ($212 million after-tax) related to improved process for the estimation of Membership Rewards points redemption for card members and $153 million ($95 million after-tax) related to reimbursements made to card members for prior-year transactions including fees, interest, bonus rewards and incremental expenses related to consent orders.
The restructuring charge primarily includes severance payments to about 5,400 employees, expected to be discharged in 2013. However, American Express also expects to create more jobs during the year, leading to an overall decline of 4%–6% in 2013. The current staff strength stands at 63,500.
Including the above-mentioned charges, reported net income amounted to $637 million or 56 cents per share. American Express’ total revenues, net of interest expense, came in at $8.1 billion, increasing 5% from $7.7 billion in the year-ago quarter. Revenue was almost in line with the Zacks Consensus Estimate of $8.09 billion.
American Express reported an 8% increase in card member spending over the fourth quarter of 2011, even after the decline witnessed in October-end and early November 2012 due to the impact of Hurricane Sandy. The write-off rate for the U.S. lending portfolio (principal only) was at a historically low level of 2%. Other credit indicators were also at historically low levels.
Despite the uneven economic scenario, American Express generated strong results including improved card member spending, enhanced revenue and improved credit quality. The company is expected to disclose its complete fourth quarter and full year 2012 financial results on January 17, 2013.
American Express currently carries a Zacks Rank #4 (Sell). We maintain a long-term Neutral recommendation on the stock. Peers MasterCard Incorporated (MA - Analyst Report) and Visa Inc. (V - Analyst Report) carry a Zacks Rank #2 (Buy).