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American Express 4Q Profit Up 17 Percent

Posted on: Monday, 24 January 2005, 18:00 CST

NEW YORK - American Express Co.'s fourth-quarter earnings surged 17 percent, helped by record cardmember spending, higher average cardmember lending balances and strong travel sales, the financial services company reported Monday.

For the three months ending Dec. 31, 2004, quarterly income was $896 million, or 71 cents per share, up from $763 million, or 59 cents per share in the year-ago period. Revenue was $7.77 billion, up 10 percent from $7.04 billion a year ago.

Analysts surveyed by Thomson First Call had forecast earnings of 70 cents per share on revenue of $7.5 billion during the quarter.

In trading Monday, American Express shares rose 67 cents to close at $52.60 on the New York Stock Exchange. The stock has traded in a 52-week range of $47.32 to $57.05.

Revenue was $7.77 billion, up 10 percent from $7.04 billion a year ago, reflecting cardmember spending, higher average cardmember lending balances and strong travel sales. The company also said increased revenue from higher client asset levels at American Express Financial Advisors boosted quarterly results.

"Record levels of cardmember spending along with higher client asset levels generated double-digit revenue growth throughout the year. Credit quality remained excellent and reengineering efforts helped to contain our expenses," Kenneth I. Chenault, chairman and CEO, said. "We generated strong volumes in the U.S. retail and everyday spending categories as spending during the holiday shopping period on American Express cards was the best it has ever been."

The fourth-quarter included a $102 million charge reflecting the restructuring of the company's business travel unit, the decision to sell some American Express Bank operations and the relocation of parts of the company's finance operations. The company also recorded a $117 million gain on the sale of the leasing product line in its small business financing unit, American Express Business Finance Corp.

The company's Travel Related Services segment reported quarterly net income of $729 million, up 20 percent from $606 million a year ago, as revenue grew 11 percent to $5.79 billion from $5.21 billion last year. Travel commissions and fees grew 9 percent, reflecting 14 percent growth in travel sales.

American Express Financial Advisors reported fourth-quarter net income of $218 million, up 20 percent from $182 million a year ago. Total revenue increased 8.5 percent to $1.86 billion from $1.71 billion last year.

American Express Bank reported net income of $6 million, which included charges of $22 million related to the previously announced restructuring of certain operations. A year ago, fourth-quarter net income totaled $29 million. Revenue edged up 1.1 percent to $207 million from $205 million a year ago.

"All in all, we generated great momentum and expanded our presence in the market with the addition of nearly five million new cards in force last year," said Chenault. "It also reflects strong growth from our bank partners who issue cards on the American Express network. In the U.S., our partnership with MBNA is off to a great start and we are very pleased with the quality of cards it has added to our network."

A year ago, American Express won a Supreme Court battle that let stand a two-year-old ruling forcing MasterCard International Inc. and Visa USA Inc. to allow banks to issue cards to rivals. The company reached a deal with credit card lending giant MBNA Corp. to issue its cards, and is now beginning to reap the benefits of that partnership.

Matthew Park, an analyst with retail brokerage A.G. Edwards & Sons Inc., said it's too early to tell how big a role the MBNA deal played in the fourth quarter, but future quarters should make it clear where the company's growth is coming from.

Park also questioned the company's decision to continue shrinking its loan loss reserve, which is used to cover bad loans. The move has helped the company's balance sheet, but Park wondered about its long-term wisdom.

"While they certainly saw healthy gains and robust spending during the quarter, is the company seeing a trend in better credit quality? While drawing down the reserve helps their bottom line, will they be able to keep that up in 2005?" he asked.

For the full year, the company reported net income of $3.45 billion, or $2.68 per share, up 15 percent from last year's $2.99 billion, or $2.30 per share. Excluding accounting charges, the company earned $2.74 for the full year, up from $2.31 per share, a year ago. Revenue was $29.12 billion, up 13 percent from last year's $25.84 billion.

Analysts expected earnings of $2.73 a share on revenue of $28.38 billion.

Source: Associated Press/AP Online

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