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American Express Falls After Temporarily Suspending Buyback Program

- By Sydnee Gatewood

Financial services company American Express Co. (AXP) reported fourth-quarter and full-year 2017 earnings after the closing bell on Thursday, announcing it will be temporarily suspending its share buyback program as a result of the Tax Cuts and Jobs Act.

The New York City-based company posted adjusted earnings per share of $1.58, beating Thomas Reuters' estimates of $1.54. Quarterly revenue of $8.84 billion beat expectations of $8.72 billion and increased 10% from the prior-year quarter due to record spending by card members.

For the year, adjusted earnings came in at $2.97 per share on $33.5 billion in revenue.

Following the announcement, the stock fell more than 2% in after-hours trading.

The graph below illustrates the trend in American Express' revenue growth over the past decade.


The company recorded a one-time charge of $2.6 billion related to the recent tax overhaul, which, according to CNBC, led American Express to post its first quarterly net loss in more than two decades.

Chairman and CEO Kenneth Chenault, who is retiring in February after 17 years in the role, said that while the impact of the Tax Act has forced the company to suspend its buyback program for the first half of the year in order to rebuild capital, he believes the long-term effects of the legislation will be positive.

"Overall, we believe the Tax Act will be a positive development for both the U.S. economy and American Express," he said. "Given the momentum in the business and the anticipated benefit of a lower tax rate, we now expect to invest up to $200 million more in 2018 than we originally planned for customer-facing growth initiatives."

Despite discontinuing share buybacks, the company will continue to pay its regular dividend.

For fiscal 2018, the company forecasts earnings per share in the range of $6.90 to $7.30.

With a market cap of $89.68 billion, American Express closed at $99.86 on Thursday. GuruFocus estimates the stock gained 34% in 2017 and is up 1% year to date.


As this is Chenault's final quarterly report before retiring, he concluded with reflections on the past year and confidence in his successor.

"I feel very good about the progress we've made throughout 2017 and will be leaving American Express in very strong hands when Steve Squeri succeeds me as chairman and chief executive officer at the end of this month," he said.

Disclosure: I do not own any stocks mentioned.

This article first appeared on GuruFocus.