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American Express earnings show record earnings. Why the stock is falling.




American Express’s first-quarter earnings disappointed as the company braced for a debt battle among credit cardholders, even as revenue rose to a record high. The stock was on the way down.

Amex (ticker: AXP ) reported first-quarter earnings of $2.40 per share — down from $2.73 a year ago — on record quarterly revenue of $14.28 billion, up from $11.74 billion in the first quarter 2022. Analysts surveyed by FactSet had expected the group to report earnings per share of $2.66 on revenue of $13.98 billion.

The group said strong sales reflected growth in core card users, as well as continued engagement with premium products. In addition, spending on travel and entertainment was exceptional, up 39% adjusted for currency effects. Millennial and Generation Z customers continue to be the fastest growing cohort in terms of spending, up 28% from a year earlier among these demographics.

That momentum is expected to continue.

“Travel and entertainment spending is off the charts and strong in all geographies and across all customer types,”[ads1]; said Amex CFO Jeffrey Campbell. Barron’s. He added that customers still show an eagerness to travel.

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But Amex, like other financial institutions, is preparing for default as the economy shows signs of weakening, even as the company caters to a premium segment of users. That preparation probably accounts for the loss in earnings in the first quarter. Amex recorded consolidated provisions for credit losses of $1.1 billion, reflecting a net provision build-up of $320 million. That said, credit ratings have remained strong through April, the company noted.

Campbell characterizes the provisions as a “business as usual” quarter, as it is the first time that the provision was not determined by pandemic conditions. Just as the pandemic hit, a new accounting standard—current expected credit loss (CECL)—came into place, requiring financial firms to build up reserves for expected credit losses in advance rather than realizing them over the life of the loan. The intention behind the rule was that companies should save in good times to prepare for bad times. But in practice, the move has added volatility to earnings as reserves build up and are released if losses don’t materialize.

Despite the provision, Amex sounded positive.

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“Our customers have been resilient thus far in the face of slower macroeconomic growth, higher inflation and higher interest rates, with credit performance remaining best-in-class,” said Stephen J. Squeri, Amex’s chairman and CEO. “That said, we are aware of the mixed signals in the external environment.”

Still, Amex reiterated its full-year guidance issued in January, expecting revenue growth of 15% to 17% and earnings per share between $11 and $11.40.

Amex shares fell 2.3% in Thursday’s trading.

Write to Jack Denton at jack.denton@barrons.com



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