American Express cuts jobs

December 12, 2001 Posted: 1543 GMT

NEW YORK (CNN/Money) -- American Express Co. is cutting 5,500 to 6,500 jobs in its travel unit and taking a $240 million to $280 million fourth-quarter restructuring charge for the cuts and the resulting consolidation of some facilities, the company said Wednesday, citing the global downturn in travel since the Sept. 11 terrorist attacks.

A Dow component, American Express said the cuts will save $230 million to $260 million in 2002 and $290 million to $315 million in 2003 before taxes.

The company now expects to report a fourth-quarter profit of 34 to 36 cents per share excluding restructuring charges. Analysts polled by earnings tracker First Call had expected a profit of 40 cents per share.

Shares of American Express (AXP: down $1.36 to $32.90, Research, Estimates) fell 82 cents at $33.44 early Wednesday following the announcement.

Travel accounts for 60-70 percent of Amex's annual revenue and about 65 percent of total earnings, according to Jennifer Scutti, an analyst at CIBC World Markets who tracks the company.

Amex Chief Financial Officer Gary Crittenden told analysts during a conference call Wednesday that the job cuts will not affect customer service.

"Let me assure you that is not the case," Crittenden said. "The decision to take an additional charge this quarter reflects the slowdown in the travel-related industry since Sept. 11. We're trying to appropriately size our infrastructure to sales levels since Sept. 11."

American Express was displaced from its corporate headquarters, destroyed in the attack that toppled the twin towers of the World Trade Center.

The cuts are in addition to the 7,700 American Express announced earlier this year, bringing the total number of jobs eliminated this year to between 13,200 and 14,200, or about 15 percent of the total workforce, the company said.

Scutti said the cuts were not all that surprising after considering that global travel and entertainment spending, which lags the comparable U.S. figures, remains much lower since Sept. 11, meaning a recovery in U.S. corporate travel remains a way off.

In addition to a sharp falloff in travel, American Express, faces high costs associated with its displacement from the World Financial Center.

"They are trying to plug as many holes in the dam as possible, especially in corporate travel," Scutti said. "The company has bet a lot on cost saving for next year's numbers, and this is going to be something that is very hard for them to achieve. Obviously they're still displaced from September 11."

Scutti, who maintains a "hold" rating on Amex, said the stock is overvalued beyond $32.

The company also said fourth-quarter business volume will reflect the impact of the Sept. 11 attacks on the financial markets, travel, corporate spending and the overall economy. On that day, terrorists crashed hijacked jets into New York's World Trade Center and the Pentagon, killing thousands. A third hijacked jet, possibly headed for the White House, crashed in a Pennsylvania field after passengers overpowered the terrorists.

"The environment since Sept. 11 has underscored the need for us to create greater flexibility in our cost structure so we can be more adaptable to a period of economic uncertainty, CEO Kenneth Chenault said Wednesday. "The additional steps we are announcing today will help us to generate good returns in a slower growth economy and put us in a strong position to capitalize on even a mild recovery."

American Express said billed business volumes in the travel business are down from last year, but have shown a stronger-than-expected rebound since the end of September.

Billing volume was down 14 percent in September from the year-earlier period; down 10 percent in October, and down 6 percent in November.

Travel sales declined 46 percent in October from a year earlier and 38 percent in November.

Additionally, the company said credit trends are likely to show modest deterioration in step with rising unemployment. Sales and financial planning levels at American Express Financial Advisors also declined in September, remaining weak through November.

Though the company has increased its assets under management compared with a year ago, it has reduced exposure to riskier high-yield securities, which is expected to reduce overall investment portfolio yields.