Earnings Preview: American Express’ Fourth Quarter Should Round Off A Tough Year
American Express (NYSE: AXP) is set to report earnings for the fourth quarter of fiscal 2016 on Thursday, January 19th. In the previous quarter, the company reported a decline in earnings per share (EPS) of 2.7% year over year on a net income decline of 9.8%. This was largely the result of the decline in revenue from the loss of American Express’ co-branding portfolio with Costco, which contributed close to 8% of American Express’ purchase volume in 2015. The U.S. based payments and banking company has lost a number of co-branding partners over the past year in Jet Airways, Fidelity Investments, Starwood Hotels.
To make up for these losses, the company has vowed to: 1) lower its operating costs by $1 billion each year by 2017; 2) improve its credit quality so as to lower its provision for losses from loans made to credit card customers; and, most importantly, 3) bring new partners into its payment network. Deals such as the one with Sam’s Club, a membership-only retail warehouse club owned by Walmart, show promise since they align well not only with American Express’ core customer base, but its goal of driving higher fees and customer spending. Additionally, it wants its issued debit and credit cards to be as widely accepted as those by Visa and Master Card by 2019. Partnerships with rapidly growing private companies like Uber and Airbnb will certainly help the company achieve these goals..
It has also been returning cash to shareholders at a strong pace. American Express bought back 7% of its shares in its last two quarters. This has also been the source of more than half of its EPS growth over the last five years. We expect the same trend to continue in the coming quarter. The strength of the U.S. dollar could lead to lower dollar realization in international revenue but lowering operating costs and share buybacks should help prop up the company’s EPS. Additionally, we will be looking out for information on the status of new co-branding partnership deals that the company is trying to make.
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Have more questions about American Express? See the links below:
- How Much Did American Express’ Revenue & Net Profit Grow In The Last Five Years?
- How Much Can American Express’ Revenue Grow In The Next Five Years?
- What Is American Express’ Fundamental Value Based On Expected 2016 Results?
- How Has American Express’ Revenue Composition Changed In The Last Five Years?
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