The Stock of American Express Rises as Spending Grows 6%

American Express Co. reports robust discretionary spending, but its stock is facing a downturn on Friday morning following the release of its latest earnings results.

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In the third quarter, the company achieved a 6% increase in card-member spending, with dining expenditures rising by 7%, surpassing overall spending growth. Airline spending also increased by 6%, slightly exceeding the figures from the previous quarter.

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Despite this growth, American Express shares (AXP) fell 5.5% in morning trading. Up until Thursday’s close, the stock had experienced a remarkable 53% increase this year, making it the second-best performer on the Dow Jones Industrial Average (DJIA) for 2024.

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Analysts Christopher Kennedy and Andrew Jeffrey from William Blair noted that while expectations were high, they remain optimistic about the company’s growth potential and find its valuation attractive. Chief Financial Officer Christophe Le Caillec described the spending figures as “strong” and “stable,” although he acknowledged that consumers are exhibiting “modest” caution in discretionary spending categories.

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Le Caillec highlighted the exceptional performance on the credit side, indicating that customers have cash available and are paying down their balances. He stated, “The 6% growth in card-member spending for the third quarter reflects an improvement from the 5% growth reported in the second quarter, although adjusting for currency impacts, the second quarter also recorded a 6% increase.”

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Jefferies analyst John Hecht pointed out that billed business fell slightly short of expectations, with international markets showing the strongest results while younger customer segments continue to slow down. He cautioned that this combination of factors, alongside the strong performance leading up to the results, could lead to a slight decline in shares in the near term.

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American Express experienced a notable acceleration in card-fee revenue growth, which jumped to 18% in the third quarter. The company reported acquiring 3.3 million new cards during this period, a positive sign that reinforces the efficacy of its business model. This growth in card fees was an increase from 16% in the previous quarter, with Le Caillec asserting that the momentum reflects the strength of their strategy.

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He elaborated on their approach, stating, “We are refreshing products and raising prices, and we see a solid demand for these offerings. Our renewal rates remain exceptionally high.” The company exceeded profit expectations for the third quarter, prompting it to revise its earnings-per-share forecast for the entire year.

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American Express reported a net income of $2.51 billion for the third quarter, or $3.49 per share, compared to $2.45 billion, or $3.30 per share, during the same period last year. Analysts had anticipated earnings of $3.29 per share. The company has updated its earnings-per-share outlook for the full year to a range of $13.75 to $14.05, up from the previous estimate of $13.30 to $13.80. However, it has maintained its revenue forecast for the year, projecting approximately 9% growth.

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In terms of revenue for the recent quarter, American Express achieved $16.64 billion, reflecting an 8% increase compared to the previous year. This figure slightly fell short of the FactSet consensus estimate of $16.68 billion.

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Chief Executive Stephen Squeri expressed confidence in the company’s strategic direction, stating that the financial results “reinforce my belief that we are investing in the right areas to enhance our value propositions and meet the financial and lifestyle needs of our customers.” He emphasized that new benefits in categories such as dining are particularly resonating with younger cardholders.

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Le Caillec mentioned that American Express had recently revamped its Gold Card, which now provides a statement credit for customers who book reservations through Resy, a restaurant reservation platform owned by American Express. He noted that Resy has proven to be an excellent fit for the company, as restaurants are eager to attract premium diners while customers seek reservations at sought-after dining establishments. Amex customers can also enjoy exclusive perks when linking their American Express card to their Resy account.

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During the third quarter, American Express recorded $1.4 billion in consolidated provisions for credit losses, an increase from $1.2 billion the previous year. This rise in provisions was attributed to higher net write-offs, which reflect an increase in loan balances.

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In summary, while American Express has reported strong spending figures and exceeded profit expectations, its shares are under pressure. The company's successful strategies, such as card acquisitions and revenue growth in card fees, indicate positive momentum. However, consumer caution and market dynamics may pose challenges moving forward. Overall, American Express appears well-positioned to navigate the evolving landscape while focusing on enhancing its value propositions for its customers.

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