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American Express Earnings Beat Expectations. Why Its Stock Is Dropping.

The company’s CEO called 2021 a “transition year.”

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American Express shares dipped in premarket trading Tuesday despite the card issuer posting better-than-expected fourth quarter results.

Shares were down as much as 2.7% ahead of Tuesday’s open as investors appeared to focus on management at American Express (ticker: AXP) expressing caution about the pace of the economic recovery and calling 2021 a “transition year.” Many on Wall Street had been hoping that the rollout of the coronavirus vaccine and eventual reopening of the economy would help shares, which are down 10% over the past 12 months.

American Express posted fourth quarter earnings of $1.4 billion, or $1.76 per share, on revenue of $9.4 billion. The results topped forecasts from analysts surveyed by Factset who expected American Express to post earnings of $1.31 per share on $9.3 billion in revenue. While the figures topped the Street’s forecast, they were still below last year’s results when American Express posted net income of $1.7 billion, or $2.03 a share, on revenue of $11.4 billion

Fourth quarter results were helped by a $674 million reserve release, driven by improving economic forecasts and lower net write-offs.

American Express has been hampered by a drop in travel and entertainment spending as much of the economy remains closed or otherwise restricted even as credit quality has been better than feared and customers are shopping online.

“While we are still seeing impacts of the COVID-19 pandemic on our business, trends continued to steadily improve in the fourth quarter,” Stephen Squeri, American Express chairman and chief executive officer, said in a statement. He added that non-travel and entertainment spending topped pre-Covid levels for the second consecutive quarter. American Express expects 2021 to be a “transition year” as it continues to navigate through the pandemic.

“While we remain cautious about the pace of recovery, we are focused on achieving our aspiration of being back to the original EPS expectations we had for 2020 in 2022, and for the company to be positioned to execute on its financial growth algorithm,” Squeri said.

American Express saw expenses fall 9% to $7.6 billion due to a drop in card spending and fewer card members tapping into travel benefits.

The global consumer services group saw fourth quarter revenue of $5.5 billion, down by 14% from a year ago. Global commercial services saw revenue of $2.7 billion—a 20% drop from last year. Meanwhile, global merchant and network services posted revenue of $1.2 billion, down from $1.6 billion last year.

Management will be holding a call with analysts at 8:30 a.m. eastern time Tuesday morning.

Write to Carleton English at [email protected]

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