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American Express Company (NYSE:AXP) pre-reported 4Q12 revenue of $8.1B , or +5% Y/Y. The top line accelerated from +4.6%/+3.8% Y/Y in 2Q/3Q12. Cardmember spend grew 8% Y/Y during 4Q12 and losses on the US lending portfolio remain low at 2.0%. American Express Company (NYSE:AXP) modified its URR estimate methodology, which increased its rewards liability and incurred a $342M ($212M A/T) charge.
In addition, American Express Company (NYSE:AXP) recognized a $400M ($287M A/T) restructuring charge, primarily to fund severance payments related to 5,400 layoffs (~8.5% of total workforce). It expects total headcount to be ~4-6% lower than the current 63.5K by year-end 2013. Lastly, AXP recorded $153M ($95M A/T) of cardmember reimbursements during the quarter. Excluding these charges, American Express reported EPS of $1.09 ($0.56 including charges) at $1.07.
4Q12 fundamentals roughly in line; will release full earnings as scheduled on 1/17/13, after market close.
AXP reported roughly in line revenue at $8.1B, or +5% Y/Y. Top line acceleration and +8% Y/Y cardmember spend came despite the headwind from Hurricane Sandy. On the call, CEO Ken Chenault noted holiday activity was solid, and surpassed its prior single day billings record (from December 2011) several times during the quarter. 4Q12 losses on the US lending portfolio remain low at 2%.
5,400 in expected job cuts drives $400M restructuring charge
While 5,400 jobs represents ~8.5% of total headcount, American Express expects total headcount to be ~4-6% lower than the current total of 63,500 by year-end 2013. The $400M ($287M after-tax) restructuring charge consists largely of severance payments. These cuts are aimed at improving the efficiency of American Express’s Global Business Travel unit by automating some services and moving volumes to online channels.
It is also reducing the size of certain staff groups, re-configuring its cardmember servicing and collections, optimizing the organizational structure and consolidating certain duplicitous functions. Overall, these changes are aimed at holding annual operating expense growth at 3% for the next two years, while maintaining marketing & promotion spend at ~9% of revenue.
Charge from revamped US URR estimate
AXP’s $342M ($212M after-tax) charge from changing its URR estimate methodology was expected, although a little higher than the $330M indicated by management on its 3Q12 earnings call. Changes to its estimate methodology increased AXP’s global URR assumption to 94% from 93%. The 100 bps increase in URR should yield $40M of incremental annual expenses. AXP plans to convert its international URR estimate to the new methodology during 2013, but does not expect a material charge to result.
AXP will reimburse $153M ($95M after-tax) to customers, including $28M of late fees, $24M of disputed balances, $68M of bonus
rewards, and $33M of restitution related to the consent order AXP entered with regulators in October 2012.
Prior to the fourth quarter, the single highest authorization’s volume day in the company’s history occurred in December of 2011. This year AXP surpassed that approval volume level not just once, but in each of 12 separate days during the 2012 holiday period. The company plans to give more details about volume next week.
Disclosure: I have a long position in AXP