American Express Inc. (NYSE:AXP) second-quarter earnings easily beat expectations as travel spending continued to rebound. As a result, the company raised its revenue forecast for 2022. AmEx stock jumped about 5% Friday morning after the credit card issuer released its results.
Cardholder spending increased 30% in Q2
In recent weeks, major U.S. banks, including JPMorgan Chase & Co (NYSE:JPM) and Citigroup Inc (NYSE:C), have pointed to the resilience of consumer spending in the face of an uncertain economic outlook, a welcome sign for card companies.
The company now expects revenue growth of 23% to 25%, above the consensus of 19.1%. It is also up from its previous guidance of 18% to 20%. American Express maintained its 2022 guidance for EPS from $9.25 to $9.65 (consensus is $9.77).
For the second quarter, cardholder spending increased 30% year-over-year on a currency-adjusted basis as global travel and entertainment demand exceeded pre-pandemic levels for the first time in April, said Chairman and CEO Stephen Squeri.
“Goods and Services spending, which is the largest category of spending on our network, continued its strong growth in the quarter, and spending by Millennial and Gen Z Card Members increased 48% on an FX-adjusted basis over last year,” he added.
AmEx added 3.2 million new proprietary cards during the quarter, an increase from the 3.0 million cards added in the first quarter of 2022.
Q2 non-GAAP EPS of $2.57 vs. consensus $2.41, $2.73 in Q1 and $2.80 in the prior-year quarter. This beat consensus by $0.16.
Consolidated second-quarter revenue net of interest expense was $13.4 billion, vs. a consensus of $12.5 billion, up from $11.7 billion in the first quarter and $10.2 billion in the second quarter of 2021. The revenue beat consensus by $860 million.
Q2 total network volumes of $395 billion increased 25% year-over-year; business billed increased 30% year-on-year; volumes processed increased by 19% year-on-year.
Michael Ashley Schulman, chief investment officer at Running Point Capital Advisors said that even though the US socio-economic environment appears to be filled with recession fears, consumer spending continued to rise over the past 18 months.
“Since price inflation is faster than wage inflation, it might make sense for a family to buy expensive durable goods rather than wait for items to rise more relative to wages,” he added.
American Express recorded higher expenses
However, the deteriorating economic outlook prompted American Express to record a total provision for credit losses in Q2 of $410 million, compared to a benefit of $33 million in Q1 and a benefit of $606 million in Q2 2021.
Consolidated expenses were $10.4 billion compared to $9.1 billion in the first quarter and $7.9 billion in the first quarter a year earlier. Customer engagement costs increased, primarily due to a 25% increase in network volumes and increased usage of travel benefits.
Global Consumer Services Group pretax profit was $1.4 billion in Q2 compared to $1.4 billion in Q1 and $1.9 billion in Q2 2021.
Pretax profit amounted to $817 million for Global Commercial Services in the second quarter, compared to $804 million in the prior quarter and $835 million a year ago.
Global Merchant and Network Services pretax revenue in Q2 was $815 million compared to $687 million in Q1 2022 and $527 million in Q2 2021.
More rewards for Marriott Bonvoy Business AmEx Card
Marriott Bonvoy, the award-winning travel program of Marriott International (NASDAQ: MAR) and American Express unveiled Thursday changes to the Marriott Bonvoy Business American Express Card designed to help small business owners transform their business spending into meaningful travel rewards.
The card now offers new and existing card members a 7% discount off the room rate on eligible reservations at Marriott Bonvoy participating hotels. Cardholders will earn 4X the Marriott Bonvoy points at restaurants, now worldwide, and free Gold Elite status, in addition to all existing Card Benefits.
Featured Image: Megapixl @Mohammedsoliman4
