While American Express posted relatively solid fourth-quarter earnings — beating analysts’ expectations — the positives for the company were overshadowed by the announcement that it would cut 4,000 jobs this year and an after-hours trading hit which saw shares drop 2 percent.
A spokesman confirmed the layoff news yesterday (Jan. 21) to multiple media outlets, but said that was an estimated number. The news of Amex’s decision to slash jobs came just before the company’s call with analysts, during which CEO Ken Chenault confirmed the news.
Chenault offered few details other than to hint that restructuring may allow American Express to create jobs elsewhere within the company, which could partially offset some of the layoffs. The cuts, which amount to $313 million in expenses per quarter, represents 6 percent of its total workforce of 62,800 employees. American Express has maintained roughly the same headcount since 2010, according to its annual reports.
“Our business and industry continue to become transformed by technology which is increasingly becoming more powerful and less expensive. Technology is also changing the way our card members and merchants want to interact with us and has created new channels of communication that has created card member satisfaction,” Chenault said on the call. “As a result of these changes, we have the need and the opportunity to continuously evolve our organization and cost structure to control for operating expenses while still investing in growth.”
Although there wasn’t specific details of the layoffs in the earnings release, Amex did list a pretax restructuring charge of $313 million that was related to improving operating efficiencies. Chenault also commented on this item, saying that investing in growth opportunities and making the company more efficient were key decisions behind the restructuring plan.
“Tight controls on the cost side of the ledger continued to give us the flexibility to invest in growth opportunities,” Chenault said in the release. “And, as in the second quarter, a substantial gain allowed us to accelerate some critical initiatives: reengineering to make American Express more efficient; renewing a key partner relationship; and making additional investments to grow our business and drive innovation in the world of payments and commerce.”
One expense that appeared not to be in check were marketing and rewards expenses. Expenses, in particular, designed to promote and encourage card usage with several of its major partners including Delta, Uber, Apple (in support of Apple Pay) and McDonald’s were up sharply.
Overall, revenue was up 7 percent for Amex, to $9.1 billion, which was attributed to a $719 million sale of the company’s investment in Concur Technologies. Net income for Q4 was up 11 percent from last year to $1.4 billion. Fourth-quarter card member spending rose 6 percent and card volumes for the year crossed the trillion dollar mark for the first time, Chenault said. In Amex’s Q4 earnings report it does not provide specific numbers in terms of card volume or number of cardholders.
Amex’s U.S. Card Services reported a net income of $665 million, down 23 percent from $864 million a year ago. Total revenues net of interest expense increased 5 percent from a year ago to $4.6 billion. In terms of global network and merchant services for Q4, net income was up 5 percent to $417 million. Total revenues increased 2 percent to $1.5 billion, which was attributed to higher merchant-related revenues driven by an increase in global card member spending.
U.S. Card Services accounts for 39 percent of total net income, International Card Services accounts for 2 percent of net income, Global Commercial Services for 35 percent of net income and Global Network/Merchant Services for 24 percent of net income.
“Solid results this quarter reflected the underlying themes that have characterized our performance throughout 2014: higher Card Member spending, increased loan balances, tight control of operating expenses and a substantial return of capital to shareholders through share repurchases,” Chenault said in a release.
“We’ve made very good progress against the backdrop of an uneven global economy and the negative impact of a strengthening U.S. dollar. We see many opportunities for growth, but at the same time, we face competitive and regulatory challenges. Our aim is to continue to capitalize on the opportunities while dealing with the challenges as we enter 2015.”