American Express Co. (NYSE: AXP) announced today that it has agreed to purchase GE Money's Corporate Payment Services (CPS) from parent General Electric Co. (NYSE: GE) for $1.1 billion. CPS provides purchasing services and cards to large corporations.

American Express said in a press release that “today’s agreement is part of an ongoing strategy to focus on the payments sector” and that the acquisition is lucrative given that “Corporate Payment Services generated over $14 billion in 2007 global purchase volume and maintained $1.1 billion in receivables at year end 2007. Its billed business has grown at a compounded rate of 18% over the last five years.”
 
Interestingly, GE is CPS’s largest client, so the terms of the deal require GE to remain a client of American Express after the sale for a set number of years.

President of American Express’s Global Commercial Card & Services Anré Williams said in the press release that, “Corporate Payment Services is a terrific business with strong leadership and talented employees who have been generating impressive growth through a combination of excellent customer service and cutting edge technological innovation. Expanding our corporate purchasing and expense management services is a top priority for American Express. Acquiring Corporate Payment Services adds to our purchasing card capabilities and gives us the opportunity to accelerate our growth. In addition, Corporate Payment Services also has excellent credit metrics and a premium client base.”

When referring to credit metrics, CPS has an advantage compared to other forms of credit because accounts are usually paid-in-full at the close of each month because charges are typically travel expenses for employees of large companies. The deal also includes GE’s vPayment technology, a fraud detector technology.

American Express, not surprisingly, expects an immediate boost to revenue from the purchase – but earnings per share growth from the deal will not be seen for a few years. Overall, the deal makes sense for American Express but it is not something to get overly excited over. American Express shares are up slightly on the news while GE shares are down slightly.

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Citi Trends, Inc. (NDAQ: CTRN) hasn't had much of a trend the last few years as it has swung widely from profits to losses and back. However, the company is hoping to change that in 2008 with a series of changes designed to stabilize its earnings and unlock value for shareholders.

Citi announced a decrease in its earnings for 2007 as its earnings came in at $0.59 in the fourth quarter compared to $0.73 during the same time last year. The decline came as a result of negative same-store sales and a related need to increase clearance markdowns along with the inclusion of an extra week in 2006. Net income also took a hit as the company's profits dropped from $21.4 million in Q4 2006 to only $14.2 million in Q4 2007.

Sales increased 6.2% from $126.8 million to $134.6 million, but this can likely be attributed to the increase in clearance markdowns. Citi effectively sold more products at a discount, which boosted its sales at the expense of its net income and profit margin. Meanwhile, the 1% growth in same-stores sales suggests that the majority of any growth that did occur was at new stores - an unsustainable paradigm.

The sunny side of the story - and cause for today's celebration - was Citi's positive outlook. The company estimated 2008 earnings in the range of $1.10 to $1.15 per share, which crushed analyst estimates of only $1.00 per share. The strong guidance is based on estimated same-store sales growth of 2% to 3% due to a planned 15% increase in selling square footage. Same-store sales are an important measure for retailers since it measures revenue at existing stores rather than newly opened ones.

Some analysts are skeptical that Citi can pull off the gains, saying that the company has a history of unpredictable swings. As a result, many retained their ratings on the stock until the company could "prove" that it was able to make meaningful changes. Investors seem to be a different story, however, as the stock swung up some 25% on the news of a possible turnaround in 2008. Which side is right remains to be seen...

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ConAgra Foods, Inc. (NYSE: CAG) gave shareholders something to chew on today after announcing spectacular earnings along with a sale of its cash cow trading unit.

The company announced much higher-than-expected quarterly profits thanks to strong performance in its food and ingredients segment along with its extremely profitable trading unit that made a ton of money predicting the rise in food and energy prices. These helped to offset falling profit at the company's larger consumer foods unit, which has been hurt by soaring commodity costs.

The trading units at companies like ConAgra have been performing extremely well in today's economy. The lower U.S. dollar combined with higher demand abroad has sparked a long-lived rally in the commodity markets. The profits made on these hedges were so large that ConAgra's own trading unit was able to make 38% more money than its food and ingredients division by booking only half the revenues!

However, ConAgra recently agreed to sell its trading unit to Ospraie Management for an estimated $2.3 billion, including $1.6 billion in cash, $525 million in debt securities, and a portion of the unit's earnings for the remainder of the calendar year. The company wanted to exit the business to focus more on its core strategic food platforms and felt the time was right given the boom in commodities.

The divesture will also mean lower and more predictable working capital requirements in the future, since commodities trading can be a somewhat volatile game. The commodity markets can change rapidly and directly affect the cost of raw materials for the company. The divesture of this business will result in more consistent operating cash flows over time and much easier sleep for shareholders.

ConAgra announced that it would use the proceeds of this sale to fund share repurchases, which should help boost the company's stock price. Share buybacks reduce the number of outstanding shares while earnings remain the same, which causes the earnings per share number to increase. This higher earnings per share number means that the share price must go up if the price-earnings multiple is to remain the same.

ConAgra also sees good times ahead. The company boosted its fiscal year forecast for earnings from continued operates to $1.80 to $1.85 a share from $1.55 with fiscal 2009 earnings still slated at a minimum of $1.55 a share. This compares to analyst estimates of $1.60 and $1.61 a shares, respectively. Executives also said that they expect future annual earnings growth of 8% to 10% on 4% sales growth.

In the end, this is all good news for shareholders who stand to exit the commodities boom at just the right time and see the money spent on a program to unlock value. Meanwhile, the company is continuing to back a strong forecast despite some increased competition from private label brands. What more could an investor ask for?

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