American Express Reports Full Year 2016 EPS Within Guidance Range

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The FINANCIAL — American Express Company on January 19 reported fourth-quarter diluted earnings per share of $0.88, down 1 percent from $0.89 a year ago. Excluding a restructuring charge related to cost reduction efforts, adjusted diluted earnings per share was $0.91.

Fourth-quarter net income was $825 million, down 8 percent from $899 million a year ago.

The current quarter included higher spending on growth initiatives, largely reflected in marketing and promotion expenses. The company showed significant progress on its plans to reduce its cost base by $1 billion. Credit quality remained strong, and the company continued to return a substantial amount of capital to its shareholders through share repurchases and dividends, according to American Express.

Fourth-quarter consolidated total revenues net of interest expense were $8.0 billion, down 4 percent from $8.4 billion a year ago. Excluding last year’s Costco-related business and the effect of foreign exchange rates due to the impact of a stronger U.S. dollar on international operations during the quarter, adjusted revenues net of interest expense increased 6 percent.3  That increase primarily reflected higher adjusted Card Member spending and adjusted net interest income.

Consolidated provisions for losses were $625 million, up 9 percent from $572 million a year ago, primarily reflecting higher loan growth. The prior year included credit costs associated with cobrand portfolios that were subsequently sold. Excluding the impact of those portfolios, adjusted provisions for losses increased 20 percent,4 primarily reflecting higher loan growth and a slight increase in both lending delinquency and net write-off rates.

Consolidated expenses were $6.2 billion, down 2 percent from $6.4 billion a year ago. The prior year included an impairment and restructuring charge of $419 million ($335 million after-tax) as well as Costco-related rewards costs.  The current quarter reflected substantially higher levels of investment spending on growth initiatives and a $50 million ($32 million after-tax) restructuring charge mentioned above. 

The effective tax rate for the quarter was 29 percent, down from 38 percent a year ago. The decrease primarily reflected the resolution of certain prior years’ tax items in the current period, and non-deductible impairment charges in the prior period.

The company’s return on average equity (ROE) was 26.0 percent, up from 24.0 percent a year ago.

For the full year, the company reported net income of $5.4 billion, up 5 percent from $5.2 billion a year ago. Diluted earnings per share was $5.65, compared to $5.05 a year ago.  Excluding restructuring charges related to cost reduction efforts, adjusted diluted earnings per share was $5.93.2 Earnings for the full year were within the company’s 2016 guidance range.

Revenues net of interest expense for the full year decreased 2 percent to $32.1 billion, from $32.8 billion a year ago. Excluding last year’s Costco-related business and the impact of foreign exchange rates, adjusted revenues net of interest expense increased 5 percent.3

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For the full year, consolidated expenses decreased 4 percent to $22.0 billion from $22.9 billion a year ago.

“At the start of 2016 we said we would move with a strong sense of urgency to change the trajectory of our business,” said Kenneth I. Chenault, chairman and chief executive officer. “The results we’re reporting today reflect substantial progress on that commitment. Revenue performance strengthened sequentially and showed year-over-year growth on an adjusted basis. We are ahead of plans to reset our cost base and improve our operating efficiency. We were able to make substantial investments to capitalize on opportunities in the marketplace and strengthen our competitive position.

“Earnings per share for 2016 were well above the range we provided at the start of the year and consistent with our revised outlook from last quarter. Our underlying business performance gave us the flexibility to significantly ramp up marketing and promotion initiatives that have been targeted to provide a mix of returns over the short, medium and longer term.

“Card Member spending (adjusted for Costco and the impact of foreign exchange rates) grew 7 percent in the fourth quarter. That increase reflects continued strength in our international markets, accelerated growth among small and mid-sized companies and strong long-term relationships with higher spending consumers. We continued to grow our lending portfolio faster than the market while maintaining industry-leading credit metrics. We acquired over 10 million new cards globally last year, and we added more than a million new merchants to our network in the United States alone.

“While we continue to operate in a very challenging environment, we ended the year in a stronger position than we started and have built momentum across our business. There is still more work to do, but given our progress to date, we expect EPS for 2017 to be between $5.60 and $5.80. That outlook is built on a set of priorities designed to put us in a strong position for 2018 and the years ahead.”

Segment Results

U.S. Consumer Services reported fourth-quarter net income of $351 million, down 35 percent from $541 million a year ago. The year-ago period included Costco-related revenues, provisions and expenses.

Total revenues net of interest expense decreased 10 percent to $3.0 billion, from $3.4 billion a year ago. 

Provisions for losses totaled $363 million, up 9 percent from $334 million a year ago.  The increase primarily reflected higher loan growth and a slight increase in both lending delinquency and net write-off rates.

Total expenses were $2.2 billion, down 1 percent. The current quarter included substantially higher investment spending on growth initiatives. The year-ago quarter included Costco-related rewards costs.

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The effective tax rate was 27 percent compared to 35 percent a year ago, driven primarily by the impact of recurring permanent tax benefits on lower levels of pre-tax income and the resolution of certain prior years’ tax items.

International Consumer and Network Services reported fourth-quarter net income of $84 million, down 40 percent from $140 million a year ago, primarily reflecting higher investment spending on growth initiatives.

Total revenues net of interest expense were $1.4 billion, up 2 percent (up 7 percent FX-adjusted5) from a year ago. The increase primarily reflected higher Card Member spending.

Provisions for losses totaled $92 million, up 19 percent from $77 million a year ago, reflecting a slight increase in lending net write-off rates.

Total expenses were $1.2 billion, up 10 percent (up 14 percent FX-adjusted5) from $1.1 billion a year ago.  The increase reflected higher investment spending on growth initiatives.

The effective tax rate was percent, compared to 24 percent a year ago. The change versus prior year reflected the impact of recurring permanent tax benefits on lower levels of pre-tax income in the current year.

Global Commercial Services reported fourth-quarter net income of $382 million, down 22 percent from $487 million a year ago.  The year-ago period included Costco-related revenues, provisions and expenses.

Total revenues net of interest expense were $2.5 billion, up 1 percent from a year ago, reflecting higher Card Member spending.

Provisions for losses totaled $171 million, up 12 percent from $153 million a year ago.

Total expenses were $1.8 billion, up 14 percent from $1.6 billion a year ago.  The increase reflected higher investment spending on growth initiatives, as well as an increase in rewards expenses.

The effective tax rate was 30 percent, down from 36 percent a year ago, driven primarily by the impact of recurring permanent tax benefits on lower levels of pre-tax income and the resolution of certain prior years’ tax items.

Global Merchant Services reported fourth-quarter net income of $369 million, up 1 percent from $364 million a year ago.

Total revenues net of interest expense were $1.1 billion, down 7 percent from $1.2 billion a year ago.  The year-ago period included Costco-related revenues.

Total expenses were $560 million, down 10 percent from $621 million a year ago.  The current quarter reflected lower fraud expenses, while the prior year included higher investment spending in the Loyalty Coalition business.

The effective tax rate was 34 percent, down from 37 percent from a year ago.

Corporate and Other reported fourth-quarter net loss of $361 million compared with net loss of $633 million a year ago, which included the previously mentioned impairment charge.

 

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