American Express (AXP) Q4 Earnings Beat on Record Card Spending
American Express Co. AXP reported fourth-quarter 2021 earnings of $2.18 per share, which beat the Zacks Consensus Estimate of $1.78. Also, the bottom line increased 24% year over year.
For the quarter under review, the company’s total revenues net of interest expense increased 30% year over year to $12,145 million. The top line beat the Zacks Consensus Estimate of $11,597 million.
The strong fourth-quarter 2021 results were driven by higher Card Member spending that reached record highs and growing network volumes. The results were supported by improved performance from Global Commercial Services and Global Merchant and Network Services units. Its prudent investment strategy helped it boost new Card acquisitions, increase loan balances and enhance digital engagement with clients.
American Express Company Price, Consensus and EPS Surprise
American Express Company price-consensus-eps-surprise-chart | American Express Company Quote
Outlook
American Express, with its new growth plan, anticipates gaining heavily from the improving macro environment. Rising credit card spending will buoy its future performance. As such, AXP expects 2022 revenues to grow 18-20%. Yet, it expects earnings per share within $9.25-$9.65, lower than the Zacks Consensus Estimate of $9.72. The company recorded earnings per share of $10.02 for full-year 2021.
In the long term, AXP expects to achieve revenue growth of more than 10% and earnings per share to rise in mid-teens, as the economy reaches a steady state.
The company is likely to raise its quarterly dividend for the first time since 2019. It plans to hike dividend by 20% to 52 cents per share, starting from the first quarter 2022.
Q4 Operational Performance
Thanks to higher spending, network volumes jumped 29% year over year to $368.1 billion for the fourth quarter.
Provision for credit losses amounted to $53 million against the year-ago quarter’s provision benefit of $111 million.
Total expenses of $9,786 million increased 29% year over year, primarily due to higher marketing and business development, and card member rewards. Also, higher costs from card member services, salaries and employee benefits, professional services, and data processing and equipment increased total expenses.
The credit card giant’s return on equity of 33.7% expanded 1950 basis points year over year.
Q4 Segmental Performances
Global Consumer Services Group segment recorded a pretax income of $1,301 million for the fourth quarter, which decreased 11% year over year primarily due to higher expenses. Total revenues net of interest expense increased 23% year over year to $6,949 million, courtesy of a rise in Card Member spending.
Global Commercial Services segment delivered pretax income of $706 million, which increased 6% year over year despite a 27% rise in expenses. Total revenues net of interest expense were $3,554 million, which climbed 30% year over year, attributable to higher Card Member spending.
Global Merchant and Network Services segment reported pretax net income of $508 million, which increased 84% year over year despite a 15% increase in costs. Total revenues net of interest expense increased 31% year over year to $1,454 million, primarily driven by growing network volumes.
Corporate and Other posted fourth-quarter pretax loss of $209 million, narrower than the prior-year pretax loss of $545 million due to a non-cash gain.
Consolidated pretax income for fourth-quarter 2021 was $2,306 million, up 24% from $1,858 million a year ago.
Balance Sheet (As of Dec 31, 2021)
American Express exited the fourth quarter with cash & cash equivalents of $22 billion, which decreased sequentially from $28 billion. As of Dec 31, 2021, the company’s long-term debt was $39 billion, up from $34 billion at third quarter-end.
Zacks Rank & Key Picks
American Express currently carries a Zacks Rank #3 (Hold). Some better-ranked players in the Finance space include LendingClub Corporation LC, Houlihan Lokey, Inc. HLI and Alerus Financial Corporation ALRS. While LendingClub and Houlihan Lokey sport a Zacks Rank #1 (Strong Buy), Alerus Financial carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Headquartered in San Francisco, CA, LendingClub is an internet financial services provider. It offers an online lending marketplace platform to connect investors and borrowers. The peer-to-peer lending platform is expected to gain from the ongoing economic recovery. LendingClub’s 2021 earnings are expected to rise 107.2% to 11 cents per share. LC beat earnings estimates thrice in the last four quarters and met once, with an average of 186%.
Houlihan Lokey — headquartered in Los Angeles, CA — provides multiple financial services to clients all over the world. Its growing footprint in Europe and Asia’s investment banking services field will help HLI boost strategic and shareholder value in the coming days. Rising average transaction fees will help HLI increase corporate finance revenues. Houlihan Lokey’s bottom line for the current year is expected to rise 44.8% year over year to $6.69 per share. In the past 30 days, it has witnessed three upward estimate revisions and no downward movement. HLI beat earnings estimates in all the last four quarters, with an average of 39.5%.
Based in Grand Forks, ND, Alerus Financial provides numerous financial services to clients. Its financial strength is reflected by massive total assets of $3.2 billion at third quarter-end, which increased 5.4% for the first nine months of 2021. Rising investment securities will likely keep boosting ALRS’ asset position in the coming quarters. Alerus Financial’s bottom line for 2021 is expected to jump 11.1% year over year to $2.80 per share. ALRS beat earnings estimates thrice in the last four quarters and missed once, with an average surprise of 23.6%.
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