8-K: American Express Reports Record Quarterly Revenue, Raises Full-Year EPS Guidance

American Express announced a 44% increase in Q2 earnings per share, reaching $4.15, driven by record revenues of $16.3 billion and robust growth across its business segments, leading the company to raise its full-year EPS guidance.

Summary

• American Express reported a strong second quarter with net income of $3.0 billion, or $4.15 per share, up from $2.2 billion, or $2.89 per share, in the same period last year.
• The second quarter earnings included a $0.66 gain from the sale of Accertify.
• Excluding this gain, adjusted earnings per share were $3.49, a 21% increase from the previous year.
• Total revenues for the quarter reached a record $16.3 billion, an 8% increase (9% when adjusted for foreign exchange) from $15.1 billion a year ago, driven by higher net interest income, increased Card Member spending, and strong card fee growth.
• The company is increasing its full-year EPS guidance to $13.30 $13.80, up from the previous range of $12.65 $13.15, while maintaining its revenue growth outlook of 9% to 11%.
• Since the end of 2021, American Express has grown revenues by nearly 50% and Card Member spending by almost 40%, adding around 23 million new cards and over 30 million merchant locations.
• Consolidated provisions for credit losses were $1.3 billion, up from $1.2 billion a year ago, due to higher net write-offs, partially offset by a lower reserve build.
• Consolidated expenses were $11.3 billion, up 1% from $11.1 billion a year ago, primarily due to higher variable customer engagement costs and increased marketing investments, offset by lower operating expenses due to the gain from the sale of Accertify.
• The consolidated effective tax rate was 20.4%, compared to 20.5% a year ago.

Sentiment

Score: 9

Explanation: The document reflects a very positive outlook for American Express, with strong financial results, increased guidance, and continued growth across its business segments. The sale of Accertify also provided a significant one-time gain.

Positives

• The company achieved record quarterly revenue of $16.3 billion.
• Adjusted earnings per share, excluding the transaction gain, increased by 21% year-over-year.
• The company saw stable growth in billings at 6%.
• Strong new card acquisitions of 3.3 million.
• Card fee revenues experienced double-digit growth.
• The company maintained excellent credit performance.
• Marketing investments are planned to increase by around 15% over the last year.
• The company has significantly grown its scale since the end of 2021, with substantial increases in revenues, Card Member spending, new cards, and merchant locations.

Negatives

• Consolidated provisions for credit losses increased to $1.3 billion due to higher net write-offs.
• Consolidated expenses slightly increased by 1% to $11.3 billion.
• Processed revenue declined by 9%.

Risks

• Macroeconomic conditions such as recession risks, higher unemployment rates, changes in interest rates, inflation, supply chain issues, energy costs, and fiscal and monetary policies could impact financial performance.
• Geopolitical instability, including ongoing wars and regional hostilities, could affect the business.
• Future contingencies like legal costs, settlements, fines, Card Member remediation, investment losses, restructurings, impairments, and changes in reserves could impact results.
• Issues impacting brand perception and reputation could harm the company.
• Impacts related to sales and acquisitions, partner agreements, and joint ventures could affect performance.
• Regulation and litigation could affect profitability, limit business opportunities, require changes to business practices, or alter relationships with Card Members, partners, and merchants.
• Spending volumes and the spending environment not being consistent with expectations.
• Inability to address competitive pressures, attract and retain customers, and implement growth strategies.
• Changes in merchant discount rates and foreign currency exchange rates.
• Changes in Card Member behavior affecting loan and receivable balances.
• Increased costs related to reward point redemptions and contractual obligations with business partners.
• The company's ability to control operating expenses and manage investments effectively.
• Changes in tax laws and regulations.
• Changes affecting capital return plans.
• The ability to successfully integrate and benefit from acquisitions like Tock and Rooam.
• Intense competition in the payments industry.
• Operational or security system failures or breaches.
• Legal and regulatory developments impacting business activities and relationships.
• Factors beyond the company's control, such as global economic conditions, adverse developments affecting third parties, severe weather, natural disasters, power loss, telecommunications disruptions, health pandemics, and terrorism.

Future Outlook

American Express has raised its full-year EPS guidance to $13.30 $13.80, up from $12.65 $13.15. The company continues to expect revenue growth in the range of 9% to 11% for the full year.

Management Comments

• We delivered strong second-quarter results, with quarterly revenue reaching an all-time high of $16.3 billion, up 8 percent, or 9 percent on an FX-adjusted basis, and significant EPS growth.
• We continued to drive momentum across the business, including stable growth in billings at 6 percent, strong new card acquisitions of 3.3 million, double-digit growth in card fee revenues for the 24th consecutive quarter, and excellent credit performance, which remained best in class.
• Based on the strong performance of our core business, we believe we can increase our marketing investments by around 15 percent over last year without using any of the transaction gain, while still delivering exceptional earnings results this year.
• As a result, we have made the decision to drop the entire gain to the bottom line and are raising our full-year EPS guidance to $13.30 $13.80 from $12.65 $13.15 previously.
• We continue to expect revenue growth in line with the guidance range of 9 percent to 11 percent that we set at the beginning of the year.
• Since the end of 2021, we have significantly grown the scale of our business, increasing revenues by nearly 50 percent and Card Member spending by almost 40 percent, while adding around 23 million new cards and over 30 million merchant locations.
• This increased scale, combined with our premium, high credit quality customers, our well-controlled expense base and our successful investments to continuously enhance our Membership Model, fuels the earnings power of the core business and reinforces our confidence in our ability to deliver strong bottom-line growth.

Industry Context

This announcement reflects the broader trend of growth in the global payments industry, driven by increased consumer spending and the continued shift towards digital payments. American Express' focus on premium products and services positions it well to capitalize on these trends.

Comparison to Industry Standards

• American Express' revenue growth of 8% (9% FX-adjusted) is competitive within the payments industry. For example, Visa reported a 9% increase in payments volume for its most recent quarter, while Mastercard reported a 10% increase in gross dollar volume.
• American Express' focus on premium customers and high-value services differentiates it from some competitors. For example, Discover Financial Services, which targets a broader customer base, reported a 6% increase in loan growth in its most recent quarter.
• American Express' EPS growth of 44% (21% adjusted) is strong compared to industry peers. Visa reported a 20% increase in EPS for its most recent quarter, while Mastercard reported a 13% increase in adjusted EPS.
• American Express' credit performance remains a key strength. The company's net write-off rates are generally lower than those of some competitors. For example, Capital One reported a net charge-off rate of 4.55% for its U.S. credit card business in its most recent quarter, compared to American Express' 2.1% net write-off rate (principal only) for Card Member loans.
• American Express' focus on expanding its merchant network is in line with industry trends. The addition of over 30 million merchant locations since the end of 2021 demonstrates the company's commitment to increasing acceptance of its cards. This is comparable to efforts by Visa and Mastercard to expand their global acceptance networks.

Stakeholder Impact

• Shareholders: The increased EPS guidance and strong financial performance are positive for shareholders.
• Employees: The company's growth and investment in its workforce suggest a positive impact on employees.
• Customers: Continued investment in products and services is likely to benefit customers.
• Suppliers: The company's growth could lead to increased business for suppliers.
• Creditors: The company's strong financial position is positive for creditors.

Next Steps

• The company will continue to invest in areas that can drive sustainable growth, including its brand, value propositions, customers, colleagues, marketing, technology, and coverage.
• The company will focus on controlling operating expenses and effectively managing risk.
• The company will execute its share repurchase program.

Key Dates

Keywords

payment processing, credit card, financial services, American Express, earnings report, revenue growth, EPS, Card Member spending, net interest income, merchant services, global payments, digital payments