American Express Company (NYSE: AXP) Is Likely To Report A Net Loss in Q4

January 17, 2018, 13:12 pm ET, BY Simon M.- Contributor| Editor: Thomas H. Kee Jr. (Follow on LinkedIn)

The American Express Company (NYSE: AXP) recently announced that it will incur a one-time $2.4 billion tax expense due to the passage of the tax reform bill. This one-time expense is likely to affect Q4 revenues, which will be the main driver behind the company reporting a net loss in its Q4 earnings on Thursday.

Article Summary

American Express is set to incur a one-time tax charge of $2.4 billion.

The tax charge will affect its full-year earnings for 2017.

The company future looks promising given the growing popularity of credit cards.

Here’s the trading report on AXP.

However, the one-time tax expense is not a major headwind for the company given the positive outlook for the credit and debit card industry in 2018. Last year was a historic year for this industry given that for the first time in history credit and debit card transactions surpassed cash transactions in the USA.

Since losing the lucrative co-branding deal with Costco Wholesale Corporation (NASDAQ: COST) in April 2015, the company has been keen to find other co-branding deals. AmEx recently extended its co-branding deal with Hilton Hotels Corporation (NYSE: HLT) where it will be the sole issuer of the hotel chain’s credit cards in the U.S.  

The co-branding deal spells good news for the company’s investors even as the credit card company has indicated that full year earnings for 2017 will be lower than the expected $5.80-$5.90. AmEx has a choice of whether to split the one-time tax charge into 8 payments over a year, or to pay it in one installment, which could affect its earnings into 2018.  

AmEx specializes in issuing high-end branded credit cards, but has lesser cards in circulation compared to its main competitors Mastercard Inc (NYSE: MA) and Visa Inc (NYSE: V), because it is both a card issuer and a payment processor. MasterCard and Visa are solely payment processors, which allows them to have a higher volume of cards in circulation because they do not issue the debt linked to their cards.

The company’s outlook for 2018 looks promising as it focuses on growing its book of business by attracting and keeping some of the most affluent cardholders globally. Despite the significant competition AmEx faces from its two giant competitors, the company has curved a niche for its high-end credit cards, which is good for the company’s shareholders.

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