According to the news report by Reuters, American Express Co. missed its quarter four Wall Street estimates as it reported its earnings on Thursday. The company stated that customer spending rates dropped despite a strong sales season in the US.
The credit card company’s shares dropped by 2.4% in after-hours trading after this news broke. Prior to that, the bank’s shares closed the trading day up by 0.1%.
Buckingham Research Group’s analyst Chris Brendler said that spending on AmEx cards for the last couple of quarters has been at 10%, however it dropped down to 9% in the fourth quarter of 2018. And that, according to him, is what has had an impact on the bank’s stocks.
Despite the face that American spending during the holiday season was the strongest it had been in six years, AmEx experienced slowing growth. In fact, according to a report by MasterCard, 2018’s holiday spending went up by 5.1% to cross $850 billion.
The strong spending in the last quarter meant that many more people took loans on credit cards. This was reflected in the growth of American Express’s loan business, which increased by 12%. The down side to that was credit loss provisions correspondingly rose by 14%.
Added to this, AmEx also saw higher costs as it invested in offering more promotions and perks to customers in the form of rewards programs and access to lounges at airports. The company had to do this to compete against Chase Card from JP Morgan, Visa and Mastercard. Because of this, the company said that card member rewards costs went up by 11% in the fourth quarter of last year.
American Express reported that its net income was at $2.32 a share, or $2.01 billion. A year ago, the company had reported losses of $1.21 billion (which comes to $1.42 a share) because of a one-time charge it had to bear. This was due to the change in the American tax code.
This also meant that the company had more than doubled its yearly profit from $2.75 billion in 2017 to $6.92 billion in 2018.
MarketWatch reported that the company’s shares went up from $9.7 billion in the fourth quarter of 2017 to $10.5 billion in 2018. The market expectation was that the company would post earnings of $1.81 a share with sales to the tune of $10.6 billion.
The bank also added another 12 million new credit cards in 2018.
AmEx’s Chief Executive Officer Stephen J Squeri said that the company continued to witness strong returns on investments made to gain market share as well as add scale to the bank’s operations.
Squeri also said that American Express’ growth last year was well balanced across regions and business lines, along with being broad based.
CNBC gave further details on this story. Squeri is also reported to have said that this was the 6th straight quarter that the company showed revenue growth of a minimum of 8%.
The company also gave a positive guidance for 2019, in part due to the fact that consumer spending was expected to continue to stay strong. AmEx gave a full-year forecast that its growth would be between 8% and 10%. Wall Street estimates on the company’s 2019 performance is 7.5%.
American Express also said that it was looking at an EPS (earnings per share) forecast of $7.85 to $8.35 per share. Wall Street estimates for the company’s EPS is also within that range at $8.12 per share.
Squeri, during the earnings conference call with analysts, said that while there were definitely mixed signals with regard to economic and political stability, the company still expected to perform well in 2019 based on business performance.