Credit card giant American Express (NYSE:AXP) reported fourth-quarter earnings that exceeded analyst expectations and represented excellent growth. However, shares were in the red after the report, down by approximately 3% at around 4:45 p.m. EST. Here's a rundown of the numbers and why investors might be a little disappointed.

American Express' fourth-quarter results

American Express' fourth-quarter earnings beat expectations on both the top and bottom lines. Earnings of $1.58 per share came in $0.04 ahead of analyst estimates. Revenue landed at $8.84 billion, surpassing the expectation of $8.72 and representing a 10% year-over-year improvement. Amex also reported record levels of card member spending.

Furthermore, despite the big rise in revenue, consolidated expenses actually dropped by 1%. This combination is one big reason why the company's earnings per share of $1.58 was nearly 80% higher than the $0.88 per share it posted a year ago.

Black notebook with Tax Reform on the cover.

Image source: Getty Images.

Big tax reform expense = No buybacks in the first half of 2018

After reading the previous section, you may think that the stock would have jumped after the earnings announcement, but the opposite was true.

One thing that could be disappointing to shareholders is the impact of the Tax Cuts and Jobs Act, which resulted in a $2.6 billion one-time charge.

To be clear, the charge was previously disclosed and wasn't a surprise, although it did turn out to be a bit higher than the $2.4 billion charge Amex said it had been expecting. What may have caught investors off guard is the company's decision to suspend its buyback program throughout the first quarter of 2018 in order to offset this expense. According to CEO Kenneth Chenault, "The upfront charge triggered by the Tax Act reduced our capital ratios and, as a result, while we will be continuing our quarterly dividends at the current level, we plan to suspend our share buyback program for the first half of 2018 in order to rebuild our capital."

Buybacks are a major part of Amex's capital return plan. The company's 1.4% dividend yield isn't much to get excited about, but buybacks reduced its outstanding share count by 5% over the past year alone. So, the loss of the buyback program, although temporary, could be seen as a negative by shareholders.

The ongoing impact of tax reform

The good news is that beyond the one-time charge, American Express' earnings will likely be a big beneficiary of tax reform. While the current quarter isn't a good benchmark due to the massive charge, the company's effective tax rate in the fourth quarter of 2016 was 29%.

For 2018, American Express estimates its effective tax rate will be about 22%. So, it's fair to say that it expects substantial tax savings going forward. In the earnings report, Chenault emphasized that the tax changes will have a positive long-term effect for the company. In fact, Amex now expects to invest as much as $200 million more than it initially planned into its business.

Looking forward

American Express expects 2018 earnings per share in the range of $6.90 to $7.30. At the midpoint, this would be a 20% increase over 2017, excluding the one-time tax reform charge, a pretty impressive growth rate when you consider that Amex trades for less than 14 times forward earnings. I already own American Express in my portfolio, and will consider adding more if any post-earnings weakness persists.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.