American Express: Feels Financial Burden, Just Like Customers
American Express (NYSE:AXP) recovered more easily from the financial crisis than its competitors, due in part to its traditional customer base, which is focused on borrowers who use their credit cards frequently and pay bills on time. However, the continuing weak economic climate has hurt consumer finances, which in turn caused the company’s earnings made from finance charges and fees to fall this quarter. Additionally, American Express saw its expenses rise as it sought to build new revenue streams by issuing new card products for new customer types, including younger consumers.
The effects of those structural changes and the weakened demand for credit was evident in the company’s fourth quarter results; earnings fell 47 percent for the three-month period, pulled down by burgeoning expenses. Included in the increased financial pressures were restructuring costs of $400 million stemming from its plans to cut staff by 8.5 percent and expenses of $342 million resulting from an overhaul of its Membership Rewards customer-loyalty program.
“Since rebounding from the recession, we have gained share in a very competitive U.S. industry and enhanced the many benefits we provide cardmembers. We have improved our risk management capabilities, begun to tap additional revenue streams and deployed new technologies that let us serve a growing number of customers online and through their mobile phones,” said Chairman and Chief Executive Officer Kenneth I. Chenault, in the earnings announcement. “At the same time, we’ve expanded into new markets internationally and extended our presence well beyond the traditional American Express footprint.”
While cardmember spending rose 8 percent from the previous year, profits for the quarter amounted to only $637 million, or 56 cents per share, a decrease from $1.19 billion, or $1.01 per share, in the year ago quarter. However, revenue increased 5.2 percent to $8.1 billion over the three-month period.
Following the release, shares fell 24 cents to $60.50 in after hours trading. At market’s close on Thursday, the stock was up 21 percent over the past 12 months.