Amex Shares Fall 3.62% Despite Q3 Profit Beat, Job Cuts for AI

On Friday, American Express (Amex) saw its stock fall 3.62%, a decline that caught many off guard given that the company had beaten profit forecasts for the third quarter.

Alongside the earnings report, Amex revealed a plan to eliminate roughly 5% of its 77,000 employees worldwide in preparation for artificial intelligence. The company will record a $336 million restructuring charge related to this initiative.

Amex to Reduce Management Layers Before Embracing AI

Chief Financial Officer Christophe Le Caillec outlined three motivations for the decision in an interview with CNBC.

• Streamlining the organization
• Increasing the company's agility
• Getting ready for AI

Le Caillec also clarified that the workforce reductions must precede the automation efforts.

“You don’t want to automate processes that are not optimally structured. So what we’re doing here is to reduce layers and increase spans of controls, so that we can automate and take advantage of AI in the coming quarters and the coming years,” Le Caillec said.

Amex is not alone among financial institutions in reducing headcount. The previous day, Barclays announced plans to lay off 5,000 employees, approximately 5% of its staff, as part of a technology-driven cost reduction.

Meanwhile, six of the largest US banks collectively cut 15,000 jobs while boosting their first-quarter earnings by 18% to $47 billion.

The restructuring also affects Amex's profit guidance. The company is funding it using a portion of a one-time gain.

What Caused Amex's Stock Drop Despite Solid Earnings?

The issue lay in the composition of those profits.

Although Amex reported a 13% increase in earnings per share, its underlying pretax profit only rose 1.6%. The earnings improvement was largely driven by a reduced tax liability and stock buybacks, not by operational strength.

Revenue fell short of analysts' forecasts.

At the same time, Amex lifted its full-year profit outlook, but the upgrade was primarily due to a one-time gain from the sale of a business interest. When that gain and the restructuring costs are excluded, the guidance saw only a modest improvement.

In the eyes of investors, the figures indicated that the company's core business was expanding at a slower pace than the headline earnings numbers suggested.

This letdown, together with uncertainty about the AI-related restructuring and a widespread market downturn, probably played a role in the stock's drop on Friday.