Updated from 2:50 p.m. EST
A slowdown in corporate spending and travel and big costs for layoffs undermined profits at
in the fourth quarter, and the company said top and bottom line growth would remain "difficult" in the first half of this year.
In a conference call, Chief Financial Officer Gary Crittenden reiterated that it would be a "challenge" for the company to achieve its revenue targets in 2002. He also said weak equity markets and the decline in travel spending would put pressure on earnings growth going forward.
"We do believe comparisons will be more difficult in the first couple of quarters," he said. "We expect the front half (of the year) to be more difficult than the back."
Analysts polled by Thomson Financial/First Call are expecting American Express to earn 43 cents in the first quarter, 45 cents in the second quarter and $1.91 for 2002.
Jennifer Scutti, an analyst at CIBC World Markets, said she is expecting "very depressed" top line growth this year. The company has a long-term revenue growth target of 8% and an earnings growth target of 12% to 15%.
"I expect maybe 5% to 6% on the top line and about 10% on the bottom line," she said. "But as the cost-cuts come through that should help them."
American Express said it earned $297 million, or 22 cents a share, in the fourth quarter, compared with $677 million, or 50 cents a share, last year. The latest results include a $279 million pretax restructuring charge to cover costs associated with the elimination of 6,800 jobs, as well as office consolidations. Excluding the charge, the firm earned $476 million, or 36 cents a share.
On Dec. 12, American Express said it expected to earn 34 cents to 36 cents a share, excluding the charge, below the 40-cent estimate. The firm also said it expected to lay off 5,500 to 6,500 people, and take a charge of $240 million to $280 million.
"Our 2001 results reflected the overall weakness in the economy throughout the year and the sharp slowdown in consumer spending, business travel and investment activity after the terrorist attacks of Sept. 11th," said CEO Kenneth Chenault. "While we are seeing signs of improvement in volumes, we are continuing to take a cautious view and expect the economy to remain weak throughout 2002."
The financial services giant posted revenue of $5.59 billion compared with $5.71 billion last year. Analysts had been looking for a profit of 23 cents a share on revenue of $5.3 billion.
Prudential Securities analyst Bradley Ball said the results reflected "margin improvement, loan growth and increased cards in force, mitigated by lower billed business volume, weaker travel revenues, lower spreads in American Express Financial Advisor's investments, and lower assets under management."
Ball also said credit quality worsened in the quarter, with charge card and credit card related charge-offs rising 2 basis points and 30 basis points to 0.47% and 5.9%, respectively.
"While American Express continues to face several hurdles, including weak travel and entertainment and airline volumes and deteriorating credit quality," the company's cost savings of $1 billion so far and prospects for an additional $280 million in 2002 should help the company achieve "more stable low double digit earnings growth in 2003 and beyond," he said.
Profits at the company's travel-related services division fell 64% in the quarter to $170 million, including a $219 pretax charge, from $470 million last year. American Express Financial Advisors saw its profits fall 33% to $163 million, including a $45 million charge, from $242 million a year ago. American Express Bank reported fourth-quarter earnings of $9 million, including a $12 million charge, compared with $6 million a year ago.
The company announced three major cost-cutting plans in 2001 as it struggled with a downturn in the economy and a falloff in travel following the terrorist attacks. In the second quarter, American Express cut 1,600 jobs and took an $826 million pretax charge to write down losses in its junk-bond portfolio. The company also cut 6,100 jobs in the third quarter and took a $352 million pretax charge to cover associated costs.
Shares of American Express ended down 70 cents to $36.29 Monday. The stock fell 35% last year but is up about 1% year to date.