American Express shares suffered a sharp decline on Friday as investors reacted to a 38% drop in fourth-quarter profit and a disappointing 2016 earnings forecast.
The stock was down nearly 12% at $55.28, a drop that followed a 3.7% slide in extended trading Thursday after AmEx reported its fourth-quarter results.
Net income attributable to common shareholders fell to $873 million, or 89 cents per share, for the quarter ended Dec. 31, from $1.44 billion, or $1.39 per share, a year earlier, amid a drop in revenue and higher expenses.
For this year, AmEx is projecting earnings of $5.40-$5.70 per share. While the guidance is above consensus estimates, Stephen Biggar, an analyst at Argus Research, told Reuters it includes an expected $1 billion gain on the sale of AmEx’s Costco loan portfolio, which implies that underlying growth in 2016 will be “weaker than expected, not stronger.”
“Let me acknowledge that the performance we’re discussing today is not what we or you or I are accustomed to seeing from American Express,” CEO Ken Chenault said in a conference call with analysts. “We recognize that we are operating in a new reality.”
American Express said last year it was ending its U.S. partnership with Costco, a relationship that accounted for 20% of its worldwide loans and 8% of customer spending. It has also been struggling with its worst stock slump since the financial crisis, with the shares falling 25% last year.
Revenue fell 7.6% to $8.39 billion in the fourth quarter, reflecting a strengthening U.S. dollar, stiffer competition and falling gas prices. Worldwide billed business, a measure of customer spending, rose 2% percent to $273.2 billion.
“There is still further downside to go,” Jason Arnold, an RBC Capital Markets Corp. analyst, said in a research note. “We continue to believe revenue growth will be tough to attain in the current competitive environment.”
Nomura Securities analyst Bill Carcache said some investors stripped about $0.66 a share off the expected earnings per share for 2016 to account for the gain from the Costco sale. Analysts on average estimate 2016 earnings of $5.41 per share.