These 2 Factors Could Crush American Express’s Earnings

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American Express Company (AXP) Financials - Consumer Finance | Reports April 20, After Market Closes

Key Takeaways

• The Estimize consensus is calling for EPS of $1.34 on $8.01 billion in revenue, 2 cents below Wall Street on the bottom line and $2 million greater in sales
• A recent breakup with Costco is estimated to cost Amex $80 billion in billed business and 20% of its interest bearing credit portfolio
• Investors and shareholders have lost faith in current CEO, Kenneth Chenault, and have called for a change at the helm
• What are you expecting for AXP? Get your estimate in here!

Shortly after Discover reports, we get results from fellow credit card company American Express. American Express, or Amex for short, is scheduled to report first quarter earnings on April 20, after the market closes. Amex is coming off a fourth quarter in which it beat on the bottom line but missed its sales target. Revenue has been a recurrent problem and has fallen short in the last 8 consecutive quarters, or 2 fiscal years. Unfortunately, early indications look bleak heading into its first quarter earnings.

The Estimize consensus is calling for EPS of $1.34 on $8.01 billion in revenue, 2 cents below Wall Street on the bottom line and $2 million greater in sales. Per share estimates have surprisingly moved up 5% in the past month. Still, compared to a year earlier, earnings per share are expected to decline 10% while revenue is predicted to be unchanged. On average the stock trends down leading up and through earnings. 

Several credit card companies are scheduled to report over the next two weeks, with American Express being one of the expected laggards. Amex didn’t do itself any favors after cutting ties with its 16-year-old Costco account. Costco alone accounted for 8% or $80 billion of the company’s billed business and about 20% or $14 billion of its interest bearing credit portfolio. Management has indicated the breakup could generate a loss for the next couple years.

Moreover, earnings growth faces headwinds from higher expected loan loss provisions, a strong U.S. dollar, and higher expenses on growth initiatives. Though the company experienced a 3% YoY decline in provisions for 2015, the continued growth in loans and write offs are expected to bump this metric up for the remainder of 2016. Surprisingly, American Express’s financial position remains strong, with long term debt declining on a year over year basis and cash rising. However, investors are losing faith in current CEO, Kenneth Chenault, calling for change at the top. The stock has reacted poorly in light of this, falling 18.3% in the past 12 months and 9.19% year to date.