By Saabira Chaudhuri
American Express Co. said it would eliminate 4,000 jobs later
this year, but the company's cost cutting isn't moving fast enough
for some investors.
The New York credit-card firm is struggling to meet revenue
targets in a competitive environment, and an uptick in the
company's expenses in the fourth quarter worried some that a
crucial advantage for the company in recent years may be
fading.
AmEx of late has been falling short of its longtime
revenue-growth target of 8%, but the company has been able to meet
earnings expectations, in part by controlling expenses.
On Wednesday, Amex shares fell about 2% in after-hours trading
as the company disclosed a 3% increase in its expenses as part of
its quarterly earnings report. Amex's revenue and profit increased,
but not enough to satisfy investors who have grown increasingly
demanding of the company's results as the economy grows, consumers
repair their balance sheets and more people switch from using cash
or checks to plastic.
For Amex's fourth quarter, a stronger dollar, a weak December
for retail sales and the sharp drop in gas prices also took a toll
on the company's results.
Various "headwinds present a challenging environment for
American Express," wrote Jefferies analyst John Hecht in a note
following the company's report. Mr. Hecht mentioned that the
so-called discount rate, which AmEx collects on each transaction
from merchants, edged lower in the quarter, evidence of the
short-term costs associated with the company's attempts at
expansion.
The layoffs disclosed Wednesday, affecting about 6% of American
Express's 63,000 workforce, are part of a broader restructuring to
boost efficiency, company officials said on a conference call to
discuss the results.
The New York-based credit-card company, run by Chairman and
Chief Executive Kenneth Chenault, reported an 11% rise in quarterly
profit after the close.
Fourth-quarter profit was $1.45 billion, or $1.39 a share,
compared with $1.31 billion, or $1.21 a share, a year earlier.
Revenue, net of interest expense, rose 6.6% to $9.11 billion from
$8.55 billion a year earlier, helped by a gain on the sale of
American Express's investment in Concur Technologies, an
expense-management software company.
Analysts surveyed by Thomson Reuters expected a profit of $1.38
a share on revenue of $8.53 billion.
While some analysts had expected AmEx to show strong expense
controls, the company reported that companywide expenses came in at
$6.3 billion, up 3%, or 6% when adjusted for foreign-exchange
impacts, from a year earlier.
Another sign that the company hasn't cut sharply enough for some
investors: Despite layoff announcements that approach 12,000
positions over the last two years, Amex's overall headcount has
remained relatively steady between 61,000 and 63,500 since 2010,
according to the firm's annual reports.
Amex said that it had used a big part of the gain on its Concur
sale on restructuring initiatives. That may lead to cost savings
later, but in the fourth quarter, it led to a pretax charge of $313
million.
"A substantial gain allowed us to accelerate some critical
initiatives: re-engineering to make American Express more
efficient," said Mr. Chenault in prepared remarks.
American Express also spent more during the period on marketing
and promotion and renewing its partnership with Delta Air Lines.
The company is revving up partnerships with merchants, from Apple
Inc. to McDonald's Corp. to Uber to promote mobile payments and its
rewards programs.
The company, which issues credit and charge cards and owns a
processing network, said card-member spending rose 6%, while U.S.
loan balances increased 7%. The provision for loans that could sour
came in at $582 million, up 22% from a year ago.
While officials described the consumer-credit environment as
strong, the company suffered from lower spending on gasoline
purchases and the strengthening of the dollar.
"We've made very good progress against the backdrop of an uneven
global economy and the negative impact of a strengthening U.S.
dollar," said Mr. Chenault on Wednesday, even as he cautioned that
the company faces "competitive and regulatory challenges."
Also Wednesday, Discover Financial Services posted a 7% increase
in fourth-quarter net interest income, but revenue declined and
earnings fell below analysts' estimates due in part to changes in
the company's customer-rewards program.
Discover reported a profit of $404 million, down 33% from $602
million a year earlier. On a per-share basis, earnings were 87
cents, down from $1.23. Earnings excluding items were $553 million,
or $1.19 a share.
Analysts polled by Thomson Reuters had projected earnings of
$1.30 a share on revenue of $2.2 billion. These estimates generally
exclude nonrecurring items.
Shares fell about 3% in after-hours trading.
Revenue, net of interest expenses, fell 4% to $2.04 billion from
$2.13 billion a year ago, reflecting a charge related to a
simplification of the company's Cashback Rewards program. The total
fell short of the $2.2 billion analysts expected, on average.
The change involves the elimination of Discover's credit-card
rewards forfeiture reserve and will make rewards easier for
customers to redeem. Overall, the company said in November it would
post about $178 million of fourth-quarter charges related to the
change.
"We think the changes will be beneficial for our company and
have been receiving favorable feedback from our card members," said
Chief Executive David Nelms.
Robin Sidel and Daniel Huang contributed to this article.
Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com
Access Investor Kit for American Express Co.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US0258161092
Access Investor Kit for Discover Financial Services
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US2547091080
Access Investor Kit for McDonald's Corp.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US5801351017
Subscribe to WSJ: http://online.wsj.com?mod=djnwires