American Express Company (AXP) today reported fourth-quarter net income of $899 million, down from $1.4 billion a year ago. The current and year-ago quarters included a number of significant items that affected year-over-year comparisons.
The fourth quarter of 2015 included:
- A $419 million charge ($335 million after-tax) that included an impairment of goodwill and technology assets, in addition to restructuring costs within the Enterprise Growth (EG) Group.
The year-ago quarter included:
- A $719 million gain ($453 million after-tax) on the sale of the company’s investment in Concur Technologies;
- A restructuring charge of $313 million ($206 million after-tax);
- Incremental spending, which was largely reflected in higher marketing and promotion expenses;
- The renewal of the company’s partnership with Delta Air Lines, which increased rewards costs by $109 million ($68 million after-tax).
The strong appreciation of the U.S. dollar had an impact on revenues and expenses and suppressed earnings in both quarters.
Diluted earnings per share for fourth quarter 2015 was $0.89, or $1.23 on an adjusted basis excluding the EG charge, compared to $1.39 a year ago.1
Fourth-quarter consolidated total revenues net of interest expense totaled $8.4 billion, down 8 percent from $9.1 billion a year ago. Excluding the impact of foreign exchange rates and last year’s Concur gain, adjusted revenues increased 4 percent.3 The increase primarily reflected continued growth in net interest income and higher Card Member spending.
Consolidated provisions for losses totaled $572 million, down 2 percent from $582 million a year ago. The decrease primarily reflected the impact of the reclassification of certain co-brand loan portfolios to “held for sale,” as credit costs associated with those portfolios are now reported in other operating expenses, beginning in December 2015.
Consolidated expenses totaled $6.4 billion, up 1 percent from $6.3 billion a year ago. Excluding the impact of foreign exchange rates, consolidated expenses rose 4 percent.4 The current quarter reflected the EG charge. Last year’s quarter included the restructuring charge and co-brand partnership renewal costs. Both periods included incremental spending mentioned above.
The effective tax rate for the quarter was 38 percent, up from 35 percent a year ago. The increase primarily reflected non-deductible expenses included in the EG charge mentioned earlier.
The company's return on average equity (ROE) was 24.0 percent, down from 29.1 percent a year ago. Excluding the EG charge, adjusted ROE was 25.6 percent.1
For the full year, the company reported net income of $5.2 billion, down 12 percent from $5.9 billion a year ago. Diluted earnings per share was $5.05, or $5.38 on an adjusted basis excluding the EG charge, compared to $5.56 a year ago.1
Revenues net of interest expense for the full year decreased 4 percent (flat FX adjusted4) to $32.8 billion from $34.2 billion a year ago.
Consolidated expenses decreased 1 percent to $22.9 billion from $23.2 billion a year ago. Adjusted for foreign currency translations, consolidated expenses increased 3 percent.4
“Our 2015 results and outlook reflect the reset in co-brand economics, pressures on merchant fees, the evolving regulatory environment and intense competition that have been re-shaping the payments industry,” said Kenneth I. Chenault, chairman and chief executive officer. “A number of cyclical factors in the broader economy have also weighed on our performance and influenced our outlook. Against that backdrop, and the fact that revenue growth has not accelerated as we anticipated, we are moving aggressively to streamline the company and drive efficiencies in order to take out $1 billion from our overall cost base by the end of 2017.
“We now expect 2016 EPS between $5.40 and $5.70. This reflects a substantial benefit from the planned sale of the Costco co-brand portfolio, offset in part by a continuation of elevated spending on growth opportunities as well as the loss of a partial year of Costco-related earnings. The portfolio transaction is expected to occur mid-year.
“For 2017, we are now targeting EPS of at least $5.60. That includes growing over the portfolio gain and this year’s Costco-related earnings. It also includes a combination of accelerated revenue growth, aggressive expense reductions and the use of our capital strength to create value for shareholders. The 2016-17 earnings targets do not include restructuring charges or other contingencies.
“We have a great set of assets to draw upon, including a trusted brand, financial strength, an integrated business model, world class service and a history of innovation. We’re confident that we’ll not just deal with our near-term challenges, but return to growth and position the company for long-term success.”
U.S. Card Services reported fourth-quarter net income of $799 million, up 20 percent from $665 million a year ago.
Total revenues net of interest expense increased 5 percent to $4.8 billion, from $4.6 billion a year ago. The rise reflected higher net interest income from growth in the loan portfolio, as well as an increase in net card fees and Card Member spending.
Provisions for losses totaled $440 million, up 10 percent from $399 million a year ago. The increase primarily reflected a larger build in reserves this quarter, compared to a year ago. The current quarter’s provisions benefited from the reclassification of certain co-brand loan portfolios to “held for sale,” as credit costs associated with those portfolios are now reported in other operating expenses, beginning in December 2015.
Total expenses were flat at $3.1 billion compared to a year ago. The current quarter reflected higher Card Member services costs and investment spending that was maintained at an elevated level. The year-ago quarter included a portion of the three significant expense items mentioned earlier.
The effective tax rate was 36 percent, down from 39 percent a year ago.
International Card Services reported fourth-quarter net income of $73 million, up from $33 million a year ago.
Total revenues net of interest expense were $1.3 billion, down 5 percent from $1.4 billion a year ago. Adjusted for foreign currency translations, revenues were up 6 percent, primarily reflecting higher Card Member spending.4
Total expenses were $1.1 billion, down 11 percent from $1.3 billion a year ago. Adjusted for foreign currency translations, expenses were down 4 percent from last year, which included a portion of the previously mentioned restructuring charge a year ago.4
The effective tax rate was 2.7 percent, reflecting the impact of recurring permanent tax benefits on varying levels of pre-tax income.
Global Commercial Services reported fourth-quarter net income of $132 million, down 78 percent from $594 million a year ago, which included the Concur gain.
Total revenues net of interest expense totaled $817 million, down 48 percent from $1.6 billion a year ago, which included the Concur gain. Excluding the Concur gain, adjusted revenues decreased 6 percent.3
Total expenses decreased 7 percent (down 4 percent FX-adjusted4)to $547 million, from $586 million a year ago, which included a portion of the restructuring charge in the prior year.
The effective tax rate was 44 percent, up from 37 percent a year ago, reflecting the impact of certain non-deductible foreign losses.
Global Network & Merchant Services reported fourth-quarter net income of $417 million, unchanged from a year ago.
Total revenues net of interest expense totaled $1.4 billion, down 4 percent from $1.5 billion a year ago. On an FX-adjusted basis, revenues increased 1 percent.4
Total expenses decreased 4 percent to $743 million, from $772 million a year ago. On an FX-adjusted basis, expenses increased 1 percent.4
Corporate and Other reported fourth-quarter net loss of $522 million, which included the EG charge. This compared to a net loss of $262 million a year ago.