Tax Law Knocks American Express Into the Red

The company posted its first net loss in a quarter of a century but adjusted earnings and revenue beat analysts' estimates.
Matthew HellerJanuary 19, 2018

A $2.6 billion, one-time charge related to the new tax law pushed American Express into a quarterly loss for the first time in a quarter of a century.

For the fourth quarter, American Express reported a net loss of $1.197 million or $1.41 per share, compared with net income of $825 million or $0.88 per share a year ago. Revenue, net of interest expense, rose 10% to $8.84 billion.

The company is taking the charge to comply with the recently enacted Tax Cuts and Jobs Act. The charge represents its current estimate of taxes resulting from the law’s repatriation provision and the remeasurement of deferred tax assets.

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Excluding the charge, earnings came in at $1.58 a share. Analysts had predicted adjusted earnings of $1.54 per share on $8.71 billion in revenue.

“We ended the year with record billings and strong loan growth, which helped drive a 10 percent increase in revenues this quarter,” American Express CEO Kenneth Chenault said in a news release.

Card member spending rose 11% to $291.4 billion with strong momentum across each of American Express’s business segments while loans grew 14%. Discount revenue — fees charged to merchants for accepting the company’s cards — remained its largest revenue source at $5.08 billion, up 6% from the previous quarter.

“To help boost revenue, American Express has ramped up lending and increasingly courted consumers who carry credit-card balances,” The Wall Street Journal noted.

With the new tax law, American Express now expects its effective corporate tax rate to be around 22%, down from the roughly 30% the company has historically paid. “Overall, we believe the Tax Act will be a positive development for both the U.S. economy and American Express,” Chenault said.

As a result of the law, American Express is also planning to suspend its share buyback program for the first half of 2018 in order to rebuild capital.

For 2018, the company is predicting earnings per share of between $6.90 and $7.30. The midpoint of that range would represent an approximate 20% increase from 2017, excluding the impacts of the tax law.

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