Should You Be Worried About American Express (AXP)’s Earnings Announcement?

Page 1 of 2

American Express Company (NYSE:AXP) isn’t slated to release its fourth-quarter earnings until Thursday evening. So imagine Wall Street’s collective surprise last Thursday when the company released a preemptive statement about charges it would be reporting. While CEO Kenneth Chenault stated the announcement was all in the interest of transparency, should investors be nervous about what they might hear later this week?

American Express Company (NYSE:AXP)Fear not, Fool!
While we may all still be scratching our heads about the timing of this press release, investors shouldn’t be worried about what the announcement contained. By outlining three charges that have a substantial impact on the company’s bottom line, American Express allowed us to get a peek at how it performed — without giving away the farm.

The three charges, while nothing to sneeze at, were generally mild in comparison to some of the charges reported by other financial firms (read: no huge lawsuit settlements):

  • Restructuring: $400 million in costs associated with approximately 5,400 job cuts
  • Recalculating: $342 million in updated Membership Rewards redemption estimations
  • Reimbursing: $153 million in fees, charges and interest paid back to cardholders

Traveling light
In order to move the company further into the digital age, Chenault announced a plan to cut 5,400 jobs throughout 2013. The firm’s business travel segment will face the majority of the cuts in order to reflect the customer trends toward do-it-yourself booking and other online transactions. The company is planning, however, to add new positions throughout the year, so the net affect will be a workforce that’s 4%-6% smaller by year-end 2013.

American Express is just the most recent financial firm to announce layoffs:

Company Planned Job Cuts Business Segment Most Effected
American Express 5,400 Travel Services
Bank of America Corp (NYSE:BAC) 16,000 Companywide
Citigroup Inc. (NYSE:C) 11,000 Companywide
Morgan Stanley (NYSE:MS) 1,600 Fixed Income Trading

So far, JPMorgan is one of the only major Wall Street firms to resist layoffs. The company cut its bonus payout by 2% for its corporate and investment banking sectors in 2012 instead of following its rivals into the land of job cuts.

But unlike some of the other companies’ plans, which are mainly cost-savings initiatives , American Express has a clear vision of how the cuts will be managed and how it will help propel new-project development in the long term. The company’s plan should be welcomed by investors as it moves forward with growth initiatives that will benefit from the refocused workforce and (bonus!) cost savings.

Gimme, gimme, gimme
The membership rewards program is one of the most effective customer-loyalty drivers for American Express. The company reevaluates its forecast of rewards reimbursements from time to time. With the completion of its 2012 review, the company found that the redemption rate of rewards was 94% (up 1% from previous estimates), causing a $342 million adjustment. While the temporary hit to the company’s books may not be warmly welcomed by investors, an increase in rewards reimbursement should signal positive results.

Page 1 of 2