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AXP shares slide lower as spending slows
AInvestFriday, Oct 18, 2024 8:29 am ET
2min read
AXP --
FISI --

American Express (AXP) reported solid Q3 2024 earnings, with adjusted earnings per share (EPS) of $3.49, surpassing the consensus estimate of $3.29 and up from $3.30 in the prior year. However, the company slightly missed revenue expectations, reporting $16.64 billion, an 8.2% year-over-year increase, just shy of the $16.67 billion estimate. The company raised its full-year EPS guidance to a range of $13.75 to $14.05, up from the previous outlook of $13.30 to $13.80, signaling optimism about its performance heading into the final quarter of the year.

The revenue miss is weighing on the stock as spending slowed. Fees were a key driver with 18% growth which helped offset some of the slowdown in spend. The stock had a solid run from $245 on September 11 to the $285 area ahead of the report. It is not a surprise to see some investors ring the cash register given the "priced-to-perfection" rally ahead of this report.

Key metrics for the quarter were generally positive, with billed business growing 5.8% year-over-year to $387.3 billion, in line with estimates. Provisions for credit losses, a critical area for financial institutions, increased to $1.4 billion, reflecting higher net write-offs and loan growth, though this was slightly above expectations. The company’s effective tax rate came in at 21.8%, below the estimated 22.5%, contributing to the EPS beat.

On the credit front, American Express saw stable performance, with a net write-off rate of 1.9%, an improvement from 2.1% in the prior quarter, indicating that despite increased loan balances, credit quality remains intact. The company's provision for credit losses increased year-over-year, driven by higher loan balances and net write-offs, although the reserve build was lower than the same period last year.

Revenue growth was driven by several factors, including an 18% year-over-year increase in net card fees, reflecting the growing adoption of premium card products. Net interest income rose by 16%, supported by higher loan balances and rising interest rates, while discount revenue, tied to card transaction volumes, grew 4%. Expenses related to card member services also jumped 21%, underscoring increased usage of travel-related benefits and premium accounts.

Operating expenses for the quarter rose by 9% to $12.1 billion, primarily due to higher customer engagement costs tied to increased card usage and marketing investments. Despite these higher costs, American Express demonstrated strong expense management, allowing for the company’s overall profitability to remain solid.

Looking ahead, American Express reaffirmed its full-year revenue growth outlook of 9-11%, remaining confident in its ability to navigate the current macroeconomic environment. The company also maintained its commitment to expanding its premium card base, as evidenced by the acquisition of 3.3 million new card members during the quarter, many of whom are in the affluent Millennial and Gen-Z demographic.

AXP continues to invest heavily in product refreshes and enhancements, having completed 40 global product refreshes in 2024. These initiatives, including the newly launched U.S. Consumer Gold Card, are aimed at driving long-term growth and increasing engagement across key customer segments, particularly among younger consumers.

Overall, American Express' Q3 earnings demonstrated its ability to balance growth with expense management and maintain strong credit quality, despite macroeconomic headwinds. The company's raised guidance for both EPS and revenue growth reflects management’s confidence in its long-term growth trajectory.

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