American Express Company (NYSE:AXP) is gearing up to unveil its fourth-quarter 2023 results on January 26, ahead of the opening bell. Investors are keenly watching whether higher costs will have an impact on the financial performance of the globally integrated payments company.
Estimates for the fourth quarter indicate a positive outlook, with the Zacks Consensus Estimate projecting earnings per share at $2.65, reflecting a substantial 28% increase from the previous year’s figure of $2.07. The consensus mark for fourth-quarter revenues stands at $16 billion, suggesting a notable 13.1% surge compared to the year-ago reported figure.
Analyzing American Express’ recent performance, the company managed to beat the consensus estimate for earnings in two of the last four quarters, with an average surprise of 0.1%. In the preceding quarter, AXP reported adjusted earnings per share of $3.30, surpassing the Zacks Consensus Estimate by 11.5%. This success was attributed to ongoing business momentum, increased volumes, and higher card member spending. However, it faced challenges in the form of elevated compensation costs and increased operating and customer engagement expenses.
As investors await the Q4 results, several factors come into play. American Express is anticipated to showcase strengthened network volumes, continuing a trend observed in recent quarters. This growth is likely driven by increased total billed business and processed volumes, as indicated by the Zacks Consensus Estimate projecting a 6.9% year-over-year increase in fourth-quarter total network volumes.
Discount revenues, a significant revenue driver for American Express, are expected to receive support from resilient consumer spending levels. The Zacks Consensus Estimate anticipates a 7.4% year-over-year growth in fourth-quarter Discount revenues.
In the Travel and Entertainment (T&E) sector, sustained growth is expected to contribute to increased T&E-related spending. Additionally, fees, commissions, and other revenues are likely to improve due to an upturn in travel-related income. The Zacks Consensus Estimate for fourth-quarter International Card Services pre-tax income indicates a noteworthy improvement from the year-ago period’s loss, pegged at $146 million.
The quarter is projected to witness a rise in cards-in-force, with a 5.4% year-over-year increase, and a notable 15.8% year-over-year growth in the average fee per card. Furthermore, the consensus estimate for average Worldwide Card Member Loans implies a robust 17.1% year-over-year growth.
American Express’ interest income, the second-largest revenue contributor, is expected to rise on the back of higher loan disbursements. The Zacks Consensus Estimate suggests an impressive upside of nearly 37.5% in AXP’s interest income from the year-ago reported figure of almost $4 billion. Additionally, the consensus mark for Global Merchant and Network Services’ pre-tax income indicates a 22.2% year-over-year increase.
While these factors position American Express for substantial year-over-year growth, concerns linger over rising expenses, including card member rewards, marketing, and business development costs. Increased client engagement costs, driven by higher network volumes and rising compensation and service costs, may impact profit margins. The consensus estimate for average proprietary basic card member spending in commercial services indicates a 3.5% year-over-year decline and a significant increase in rainy-day funds in the fourth quarter may contribute to uncertainties surrounding the earnings outcome.
Investors are eagerly awaiting the earnings release to gain insights into how American Express navigated these challenges and whether it can maintain its positive trajectory amid the evolving economic landscape.
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