Summary
American Express Company (AXP) filed an 8-K on January 3, 2018, to disclose the estimated impact of the Tax Cuts and Jobs Act (Tax Act) enacted on December 22, 2017. The company anticipates a significant negative impact on its fourth quarter and full year 2017 earnings due to a deemed repatriation tax on undistributed non-U.S. earnings and the adjustment of deferred tax assets and liabilities to the new lower U.S. corporate tax rate of 21 percent. Based on preliminary analysis, AXP estimates these impacts will reduce fourth quarter 2017 earnings by approximately $2.4 billion, leading to an expected net loss for the quarter. Consequently, full year 2017 earnings per share are projected to fall below the previously issued guidance. While the immediate impact is negative, the company anticipates a significant long-term benefit from the lower corporate tax rate, projecting an effective tax rate in the low twenties starting in 2018.
Key Highlights
- 1AXP estimates the Tax Cuts and Jobs Act will reduce Q4 2017 earnings by approximately $2.4 billion.
- 2The company expects to report a net loss for the fourth quarter of 2017 due to the Tax Act's impact.
- 3Full year 2017 earnings per share are expected to be below previous guidance ($5.80-$5.90 range).
- 4The Tax Act will negatively affect regulatory capital and capital ratios, though they are expected to remain above minimum requirements.
- 5The reduction in the U.S. corporate tax rate to 21% is expected to be a significant ongoing benefit, lowering the future effective tax rate.
- 6AXP anticipates an effective tax rate in the low twenties (before discrete items) beginning in 2018.
- 7The company will reassess share repurchase plans for the first half of 2018 pending a full interpretation of the Tax Act's impacts.