Though acknowledging “mixed signals” in the economy, American Express Co. once again cited strong spending trends as the financial services giant posted better-than-expected earnings for its latest quarter.
The company logged third-quarter net income of $1.88 billion, or $2.47 a share, up from $1.83 billion, or $2.27 a share, in the year-prior quarter. The FactSet consensus was for $2.40 a share in earnings.
American Express AXP, -6.93% notched $13.56 billion in total revenues net of interest expense for the period, coming in above the $13.52 billion that analysts had been modeling. A year earlier, Amex recorded $10.93 billion in revenue for the third quarter.
“We are seeing the continuation of the pandemic-driven step-up in digital payments,” Chief Financial Officer Jeff Campbell shared with MarketWatch.
He noted that Amex executives are “squinting and looking hard” for signs of spending pressure but continue to see strong momentum. Third-quarter spending was up 30% from 2019 levels, while second-quarter spending was up 28%, indicating a “sequential strengthening.” Campbell said that sequential momentum also held true when looking from July to August to September.
Amex saw a 21% jump in card-member spending in the third quarter, with growth in both the goods and services and the travel and entertainment categories.
“The demand for travel has exceeded our expectations throughout the year,” Chief Executive Stephan Squeri said in an earnings release. He noted that overall spending on travel and entertainment was ahead 57% from year-earlier levels after adjusting for foreign-exchange impacts, while currency-adjusted travel and entertainment spending volumes internationally topped prepandemic levels for the first time during the third quarter.
Shares of Amex were down 4% in Friday morning trading.
The company added 3.3 million new proprietary cards in the latest quarter with record high acquisitions in U.S. consumer Platinum and Gold cards as well as U.S. business Platinum cards.
Most of Amex’s commercial business is with smaller enterprises, according to Campbell, and Amex sees largely healthy trends across this customer base.
Looking at larger businesses whose Amex spending is more levered to travel, he said noted that this group is “not fully back to prepandemic levels” but that the “steady recovery for businesses getting back on the road is still going.”
Amex disclosed $778 million in consolidated provisions for credit losses during the quarter, whereas a year earlier it saw a $191 million benefit.
The company highlighted that the change reflected a $387 million reserve build, largely driven by growth in cardholder loans and changes in economic forecasts, whereas the company saw a $393 million reserve release a year before. There were also higher net write-offs in the latest quarter.
“Our credit metrics…remained strong even as we steadily rebuild loan balances, with delinquencies and write-offs continuing to be low,” Squeri said in the release. “We have not seen changes in the spending behaviors of our customers, but we are mindful of the mixed signals in the broader economy and have plans in place to pivot should the operating environment change dramatically, as we have done in the past.”
Campbell added that there was so much liquidity during the pandemic that the company had been anticipating modest sequential increases in delinquencies and write-offs, but that he and the team still “don’t see any particular signs of stress driven by the economic environment.”
Executives at Amex project 23% to 25% revenue growth for the full year, just as they did in the second-quarter report. They anticipate that earnings per share for the full year will come in ahead of their prior outlook range, which called for $9.25 to $9.65.
“I’d say with each quarter our confidence grows in our longer term multiyear growth aspirations,” Campbell said, referring to the targets that Amex laid out in January.