American Express Falls as Layoffs and a One-Time Gain Overshadow a Record Quarter

American Express fell about 3.5% in afternoon trading on Friday, even after the card company reported record revenue and raised its profit forecast for the year. The weakness had a cause beneath the headline figures. The company unveiled a plan to shrink its global workforce, and a one-time gain had flattered the quarter’s reported profit.

On paper, the quarter looked commanding. American Express earned $5.42 a share in the third quarter, up 31% from a year earlier. Net income reached $3.71 billion, up from $2.90 billion a year ago. Revenue rose 9% to a record $20.1 billion, a touch below some analyst estimates. Management lifted full-year earnings guidance to a range of $18.30 to $18.60 a share and said the company remains on track for about 10% revenue growth this year.

So why did the stock drop on numbers like those? The market looked past the reported figures to how they were built, and to what the company signaled about its costs.

A beat built partly on a stake sale

Much of the profit jump came from a single transaction. American Express sold its remaining equity interest in Global Business Travel Group and booked a pretax gain of $982 million, equal to $751 million after tax. It was a windfall. That gain lifted the reported bottom line well above a normal quarter. Set it aside, along with a related charge, and adjusted earnings were $4.68 a share, up 13%. That figure still edged past what analysts had expected, though it reads as a far more ordinary result than the reported number suggests.

The gap between the two numbers explains much of Friday’s move. A headline that trumpets a 31% jump in earnings loses some of its shine once a reader learns that most of the increase came from a sale, while the underlying card business grew far more modestly.

Cutting 5% of the workforce

The larger news concerned headcount. The company recorded a $336 million pretax restructuring charge, equal to $253 million after tax, or 37 cents a share. Chief Executive Stephen Squeri told analysts that American Express would use part of the travel-business gain to fund efficiency work, including a reduction of about 5% of global positions. Several news organizations tied the move to pressure from rising operating costs. The company had spent the past two years adding staff, and that expansion is now reversing.

For a firm that has leaned on premium cardholders and heavy marketing to grow, the change in posture carries weight. A company that hires for two years and then announces cuts is making a statement about where it sees costs heading, and investors treated that statement as the day’s real story.

A climb that met a wall

Friday’s drop interrupted a strong stretch. The stock closed Thursday at $325.17 and had gained nearly 8% over the prior month, recovering from a late-September low of $301.96. Even after the selloff, the shares sat well within their 52-week range of $220.43 to $387.49, and the company carries a market value close to $212 billion. The reaction was sharp, not fatal.

On the calendar

The next read on card spending comes soon. Visa reports on Tuesday. Its results will show how freely consumers are charging. American Express itself is not scheduled to report again until late January. Between now and then, the open question is whether the cost cuts hold and how deep they run.

This is a general-market summary for information only — not investment advice, and not a recommendation regarding any security.