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    American Express Co (AXP)

    Q1 2024 Earnings Summary

    Reported on Jan 10, 2025 (Before Market Open)
    Pre-Earnings Price$217.50Last close (Apr 18, 2024)
    Post-Earnings Price$218.84Open (Apr 19, 2024)
    Price Change
    $1.34(+0.62%)

    What went well

    • American Express reaffirmed its full-year 2024 revenue growth guidance of 9% to 11%, with Q1 results validating the trends and guidance provided at the beginning of the year.
    • The company achieved strong growth in International Card Services, which continues to be the fastest-growing segment, providing significant opportunity for future growth, with international acceptance and coverage improving.
    • American Express acquired 3.4 million new cards in Q1, with 70% being fee-paying premium products, demonstrating strong demand and quality customer acquisition driven by product refreshes and increased marketing investments.

    What went wrong

    • Weakness in SME spending growth: American Express reported that small- and medium-sized enterprise (SME) billed business has been growing at only 1%-2% for the past year, reflecting particularly weak growth in SME spending.
    • Softer overall spending environment: The company acknowledged a softer spending environment, especially impacting the SME segment, which could affect revenue growth moving forward.
    • Rising delinquency and write-off rates: Delinquency and write-off rates have increased modestly quarter-over-quarter, and the company expects this trend to continue in 2024, potentially indicating increasing credit risk.

    Q&A Summary

    1. EPS Guidance and Rewards Benefit
      Q: Why hold EPS guidance flat despite better macro and rewards benefit?
      A: We're sticking to our EPS guidance as there's still much to play out this year, and although we had a $196 million one-time benefit from Membership Rewards adjustments, a significant portion was reinvested in marketing, so it doesn't meaningfully impact EPS for the full year.

    2. Spending Trends and Softness in SME
      Q: What's driving softer spending; is SME a concern?
      A: Overall spending is up 7%, with consumer spending up 8% and international consumer spending up 14%. The softness is in SME, which is up only 1%, but we see this as an opportunity as SME spending recovers.

    3. Loan Workout Program Trends
      Q: How are trends in your loan workout program?
      A: Our financial relief program is working well, with enrollment moderating in Q1. Performance of Card Members in the program is very strong, contributing to our strong credit metrics.

    4. Funding Costs and Pay Over Time Performance
      Q: Can you discuss opportunities to lower funding costs and Pay Over Time?
      A: Our funding mix is shifting towards more deposits, which are a stable and economical source, with 92% below the FDIC cap. Pay Over Time is performing strongly, being the fastest-growing segment of balances and attached to premium Card Members, leading to excellent credit performance.

    5. International Growth and Acceptance Initiatives
      Q: How is international billed business growth impacting guidance?
      A: International growth is very strong and presents a massive opportunity that's baked into our guidance. We're investing proportionally more internationally, and acceptance continues to improve, offering a long runway for future growth.

    6. New Card Growth Acceleration and Product Refreshes
      Q: What drove the reacceleration in new card growth?
      A: We acquired 3.4 million cards this quarter by investing more in marketing and leveraging product refreshes like Delta, Hilton, and British Airways cards, which stimulate demand and enhance marketing efficiency.

    7. Impact of Visa/Mastercard Settlement
      Q: Thoughts on Visa/Mastercard settlement and interchange reductions?
      A: It's hard to predict the impact as it still requires court approval. However, it doesn't change our strategy; we're focused on premium customers, and our pricing structures differ fundamentally from the networks.

    8. SME Spending Weakness and Prospects
      Q: When might SME spending improve?
      A: SME billed business growth has been weak, around 1%-2%, driven by macro factors affecting the industry. We're acquiring new SME customers strongly and are confident we'll win them back as they manage through funding cost pressures and return to spending more.

    9. Rewards Program and Potential to Reduce Costs
      Q: Can rewards cost pressures abate as customers find value elsewhere?
      A: We're seeing increased embedded value from partners and innovating in the Membership Rewards program, like allowing points to pay for transactions. This enhances loyalty and could ease rewards cost pressures over time.

    10. Revenue Growth Trajectory and Expectations
      Q: How do you see revenue growth trajectory given NII moderation?
      A: Q1 was as expected, with billed business steady and card fee growth moderating slightly. We maintain our full-year revenue growth guidance of 9%-11%, expecting card refreshes and premium acquisitions to support growth as NII moderates.

    11. Maintaining Loyalty and Retention
      Q: How are you investing to maintain loyalty and retention?
      A: We focus on constant engagement using analytics to offer upgrades and new products, ensuring customers remain active and embedded in our franchise, which fuels a virtuous cycle of loyalty.

    12. Card Refresh Plans and Response
      Q: What's the status and response to card refresh plans?
      A: We're proceeding with approximately 40 product refreshes this year. Early results, especially from the Delta Reserve card refresh, have exceeded expectations, driving demand and engagement.

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