American Express Co. (AXP) or AmEx reported fourth-quarter 2014 operating earnings per share (EPS) of $1.39, which surpassed the Zacks Consensus Estimate by a penny. The company kept its earnings streak alive in 2014 with the fourth consecutive earnings beat. EPS also topped the year-ago quarter figure of $1.21 by 15%. With this result, the company’s average four-quarter beat stands at 2.8%.
Notably, net income from operations soared 11% year over year to $1.45 billion from $1.31 billion in the year-ago period. The upside was primarily driven by higher consumer spending on AmEx cards and lower share count.
AmEx’ total billed business, or global card spending, continued to witness improvement in the U.S. and overseas, increasing 6% year over year to $268.5 billion. The rise came on cards used in the U.S. that grew 8% to $182.5 billion, although international business slowed at 1% growth to $86 billion.
Quarter in Details
AmEx posted total revenue, net of interest expenses, of $9.11 billion, up 7% from the prior-year quarter and about 7.7% ahead of the Zacks Consensus Estimate of $8.46 billion. Excluding revenues from the divested global travel operations in the year-ago quarter, total revenue rose 3%. The upside in revenues was attributable to modest growth in net interest income and the loan portfolio, and decline in interest expenses. Increased yields, strong credit indicators and higher lending balances drove growth as well.
However, provisions for losses rose 22% to $582 million, primarily owing to an unfavorable comparison with large credit reserve releases during the reported quarter.
AmEx’s total expenses rose 3% year over year to $6.3 billion in the reported quarter, primarily reflecting increases in marketing and promotion, salaries and employee benefits, card member rewards and services. Part of the gain (post-tax $453 million) from the sale of 13.5% investment in Concur Technologies in Dec 2014 was reinvested for marketing and promotions as well. Moreover, a post-tax charge of $68 million was incurred due to the renewal of the alliance with Delta Air Lines Inc. (DAL). These were partially offset by lower occupancy, equipment and other expenses.
Notably, AmEx also incurred restructuring charge worth about $313 million during the reported quarter. Tax rate was 35% against 33.9% in the year-ago quarter. Nevertheless, pre-tax operating margin improved to 24.4% during the reported quarter from 23.2% in the year-ago quarter.
Segment Results
U.S. Card Services reported net income of $665 million, down 23% from $864 million in the prior-year quarter, primarily due to higher expenses, provision for loan losses and tax rate. Total revenue, net of interest expenses, increased 5% to $4.62 billion.
International Card Services’ net income amounted to $33 million, plunging 68% from the year-ago quarter. Even total revenue, net of interest expenses, came in at $1.36 billion, down 5% year over year, due to lower interest income and discount revenues.
Global Commercial Services’ net income escalated to $594 million from $182 million, primarily on the gain from the sale of the company’s investment in Concur Technologies. Moreover, total revenue, net of interest expenses, spiked 28% year over year to $1.59 billion.
Global Network & Merchant Services reported net income of $417 million, up 5% from $399 million in the prior-year quarter. However, total revenue, net of interest expenses, rose 2% year over year to $1.48 billion, driven by higher merchant-related revenues.
Corporate & Other reported net loss of $262 million, wider than the net loss of $240 million incurred a year ago. Total revenue, net of interest expenses, shot up 56% year over year to $70 million.
Full-Year Highlights
For full-year 2014, AmEx’s operating earnings of $5.56 per share were at par with the Zacks Consensus Estimate of $4.92 but up 14% from $4.88 per share reported in 2013. Results were within the targeted growth in the range of 12–15% over 2013. Operating net income jumped 10% year over year to $5.89 billion.
Total revenue, net of interest expenses, rose 4% year over year to $34.29 billion and also exceeded the Zacks Consensus Estimate of $33.66 billion. Total billed business improved 7% to $1,022.8 billion. Provision for losses grew 12% from 2013 to $2.04 billion, while total expenses broke even at $23.26 billion in 2014, lower than management’s guidance of a 3% rise over 2013.
Financial Update
As of Dec 31, 2014, AmEx’s total assets were $159 billion (down from $153 billion at 2013-end), while long-term debt totaled $58 billion (up from $55 billion at 2013-end level) against cash of $22 billion (up from $19 billion at 2013-end). Meanwhile, shareholder equity amounted to $21 billion at the end of Dec 2014, up from $19 billion at 2013-end.
As of Dec 31, 2014, AmEx’ return on equity (ROE) was 29.1%, up from 27.8% in the year-ago period. Return on average common equity (ROCE) was 29%, up from 27.6% in Dec 2013. Further, return on average tangible common equity was 35.9%, up from 34.9% in the comparable period last year. Further, book value increased 10.3% year over year to $20.21 per share.
Capital Deployment Update
During the reported quarter, AmEx repurchased 13 million shares, at an average price of $90.55, for a total of about $1.18 billion, thereby outperforming its target of buying back $4.4 billion worth of shares in 2014.
On Dec 2, 2014, the company declared a quarterly dividend of 26 cents a share, payable on Feb 10, 2015, to shareholders of record as on Jan 9. This payout marks an increasefrom 23 cents in May 2014, marking the third dividend hike by the company since Nov 2007.
Approximately 95% of the capital generated was distributed to shareholders through dividend payouts and share repurchases in fourth-quarter 2014.
Guidance
AmEx aims to buy back shares worth about $1.0 billion of repurchases in first-quarter 2015.
On Jan 5, 2015, the company submitted its capital plan to the Federal Reserve, which included additional share repurchases, dividend payouts and capital distribution for 2015. A final response is expected by Mar 2015-end.
Additionally, management disclosed its intention to reduce its global workforce by over 4,000 jobs or about 6%, from the tally of 62,800 at 2013-end, to counter higher expenses and loan loss provisions, thereby improving operating efficiencies. The reduction will be partly offset by some new job creation.
Zacks Rank
American Express currently carries a Zacks Rank #3 (Hold).
Peer Take
Among AmEx’s peers, Discover Financial Services (DFS) also reported fourth-quarter 2014 results after the closing bell yesterday. The company recorded earnings per share of $1.19 missing both the Zacks Consensus Estimate of $1.30 and the year-ago figure of $1.23. The decline was primarily attributable to non-recurring items worth $226 million, related to reserves for bad loans.
Another arch-rival, MasterCard Inc. (MA) is slated to release its fourth-quarter 2014 earnings results before the opening bell on Jan 30, 2015.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment