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Earnings Results: Amex shrugs off macro fears with huge earnings beat powered by strong spending

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Shrugging off concerns about consumer spending habits in shaky economic times, American Express Co. posted a massive revenue beat Friday and boosted its outlook for the full year.

The company logged second-quarter net income of $1.96 billion, or $2.57 a share, down from $2.28 billion, or $2.80 a share, in the year-earlier period. Analysts tracked by FactSet were modeling $2.42 in earnings per share.

American Express
AXP,
+3.72%

recorded $13.4 billion in total revenues net of interest expense in the quarter, whereas analysts had been looking for $12.51 billion. The company had posted $10.24 billion in revenue during its year-earlier quarter. Amex attributed the boost largely to higher card spending.

The stock was up more than 5% in Friday morning trading and was the best performer in the Dow Jones Industrial Average
DJIA,
+0.01%
.

“I would really point you to our premium customer base,” Chief Financial Officer Jeff Campbell told MarketWatch. He said that the company’s consumer, small-business, and corporate customers are “all premium,” and those customers are showing “no signs of any stress from a credit perspective.”

Chief Executive Stephen Squeri shared in a release that Amex’s results also reflected “the scale and strength of our global customer base, the decisions we made through the pandemic and recovery to support our customers and seize on growth opportunities, and our continued focus on enhancing our value propositions and bringing new customers into the franchise.”

The company recognized a 30% boost in card-member spending on a currency-neutral basis during the latest quarter. Amex also saw the addition of 3.2 million new proprietary cards. Acquisitions of U.S. consumer Platinum and Gold cards, along with the Delta Air Lines
DAL,
-0.08%

co-branded card, notched all-time highs.

Amex saw benefits from the “robust rebound” in travel and entertainment spending during the second quarter, as consumers continue to leave their homes and spend up on experiences after holding back on such activity earlier in the pandemic.

CFO Campbell shared that while the travel recovery was “far in excess” of what Amex anticipated, the company notably hasn’t seen the strong growth in those categories come at the expense of spending on goods and services, which is where most of transactions remain.

The company disclosed $410 million in consolidated provisions for credit losses in the quarter, whereas it saw a $606 million benefit on the metric a year before. “The change primarily reflected a small net reserve build in the current quarter compared with a $866 million reserve release a year ago,” Amex noted in its release, but the company maintained an upbeat view on credit trends.

“Our credit performance remains exceptional, with delinquencies and write-offs near historical lows,” CEO Squeri shared in his statement.

CFO Campbell said that while Amex is not in the business of making economic forecasts, its latest results showed that with “a little bit of the slowdown in the economy…we can grow right through it.”

He added that the biggest point of sensitivity for Amex’s model would be a large surge in unemployment that impacts white-collar workers, though the labor market is currently very tight, representing “a buffer for our business.”

Amex now expects 23% to 25% revenue growth for the full year, compared with its prior forecast, which called for 18% to 20% growth. The company is sticking with its previous forecast for $9.25 to $9.65 in earnings per share.

Amex disclosed in January that it was targeting annual revenue growth upwards of 10% in 2024 and beyond. The company also said it was looking to grow annual EPS at a mid-teens rate over the long run.

“Six months in, we feel really good about how we’re tracking,” Campbell said.

Shares of Amex have dropped 13% over the past three months, while the Dow Jones Industrial Average
DJIA,
+0.01%

has slipped 5%.

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