American Express Co. (AXP) delivered strong third-quarter results, exceeding expectations on revenue growth, but a revised outlook for fiscal 2024 sparked concerns about the impact of inflation and rising interest rates on consumer spending.
The company’s revenue (net of interest expense) grew by 8% year-on-year to $16.64 billion in the third quarter, narrowly missing the analyst consensus estimate of $16.67 billion. The increase was primarily attributed to higher net interest income, boosted by increased card member spending, and continued strong card fee growth.
Amex’s stock price initially rose following the report, but quickly reversed gains in premarket trading on Friday. The positive earnings were overshadowed by the company’s revised outlook, which suggested that the current economic environment, characterized by inflation and rising interest rates, may dampen consumer demand.
Card member spending, also known as Billed Business, grew by 6% (or 6% forex adjusted) year-over-year to $387.3 billion. Segment-wise, U.S. Consumer Services revenue surged 10% year over year to $7.944 billion, while Commercial Services revenue climbed 7% to $3.998 billion. International Card Services revenue saw a 11% increase to $2.936 billion, and Global Merchant and Network Services revenue remained flat year over year at $1.847 billion.
Total expenses for the quarter rose by 9% year-over-year to $12.1 billion, largely driven by higher customer engagement costs due to increased card member spending, enhanced travel-related benefits, and increased marketing investments. Provision for credit losses stood at $1.4 billion, up from $1.2 billion a year ago, reflecting higher net write-offs.
For fiscal 2024, American Express anticipates revenue growth of 9% or $65.96 billion, compared to its prior expectations of 9%-11% or $65.96 billion-$67.17 billion. This revised forecast falls short of the analyst consensus of $65.97 billion. The company also raised its EPS outlook to $13.75-$14.05 (from $13.30-$13.80 prior), exceeding the consensus estimate of $13.14.
The revised outlook reflects concerns voiced by analysts regarding the impact of inflation and rising interest rates on consumer spending. In August, B of A Securities analyst Kenneth Bruce downgraded American Express, citing these macroeconomic factors as potential headwinds for consumer demand. Bruce did not anticipate the company to achieve its previously guided 9%-11% revenue growth for fiscal 2024. In October, at least three Wall Street firms, including JP Morgan, HSBC, and BTIG, followed suit and downgraded the stock.
Despite the recent downward revisions, American Express stock has seen significant growth in the past year, surging 89% in the last 12 months. However, in premarket trading on Friday, AXP stock was down 2.79% at $277.80, reflecting investor concerns over the company’s revised outlook and potential challenges ahead.