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American Express (AXP) Q2 Earnings Beat on Higher Spending

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American Express Company (AXP - Free Report) reported second-quarter 2022 earnings of $2.57 per share, beating the Zacks Consensus Estimate of $2.37. However, the bottom line decreased 8% year over year.

For the quarter under review, AXP’s total revenues net of interest expense increased 31% year over year to $13,395 million. The top line beat the Zacks Consensus Estimate of $12,429 million.

The better-than-expected second-quarter 2022 results gained from a continued business momentum and a solid revenue stream. American Express also benefited from better volumes and higher Card Member spending, due to a significant rebound in Travel and Entertainment spending. AXP added 3.2 million proprietary cards in the quarter. The positives were partially offset by higher operating costs.

American Express Company Price, Consensus and EPS Surprise

American Express Company Price, Consensus and EPS Surprise

American Express Company price-consensus-eps-surprise-chart | American Express Company Quote

Q2 Operational Performance

Due to higher spending, network volumes jumped 25% year over year to $394.8 billion in the second quarter. Network volumes rose 24% and 26% in the U.S. and the international market, respectively. Total interest income was $2,799 million in the second quarter, up 31% year over year.

Provision for credit losses amounted to $410 million compared with the year-ago quarter’s provision benefit of $606 million.

Total expenses of $10,442 million increased 32% year over year, primarily due to higher customer engagement costs, net gains on Amex Ventures equity investments in the prior year and higher compensation expenses in the current quarter.

Segmental Performances

The Global Consumer Services Group segment recorded a pretax income of $1,404 million for the second quarter, a decrease from $1,884 million a year ago. Total revenues net of interest expense increased to $7,771 million from $6,041 million in the prior-year period, courtesy of a rise in Card Member spending.

The Global Commercial Services segment delivered a pretax income of $817 million, which decreased from $835 million a year ago, due to higher expenses. Total revenues net of interest expense were $3,970 million, which climbed from $3,045 million, attributable to higher Card Member spending.

The Global Merchant and Network Services segment reported a pre-tax net income of $815 million, which increased from $527 million in second-quarter 2021, thanks to lower costs. Total revenues net of interest expense increased to $1,617 million from the year-ago figure of $1,228 million, primarily driven by growing network volumes.

Corporate and Other posted a second-quarter pretax loss of $493 million, higher than the prior-year pretax loss of $306 million, due to net gains on Amex Ventures equity investments in the year-ago period.

Balance Sheet (as of Jun 30, 2022)

American Express exited the second quarter with cash & cash equivalents of $26 billion, which decreased sequentially from $28 billion. Total assets rose sequentially from $196 million to $205 million.

As of Jun 30, 2022, AXP’s long-term debt was $40 billion, up from $38 billion at first-quarter end. It also had a short-term borrowing of $2 billion.

Outlook

American Express hiked guidance of revenue growth to 23-25% from 18-20% and reiterated earnings per share guidance in the band of $9.25-$9.65. The earnings estimate is lower than the consensus mark of $9.74 per share.

Zacks Rank & Key Picks

American Express currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader finance space are Encore Capital Group, Inc. (ECPG - Free Report) , SmartFinancial, Inc. (SMBK - Free Report) and Paramount Group, Inc. (PGRE - Free Report) , each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Headquartered in San Diego, CA, Encore Capital is a global debt recovery solutions provider. The Zacks Consensus Estimate for ECPG’s 2022 bottom line indicates a 14.4% increase from the prior-year reported number.

Based in Knoxville, TN, SmartFinancial is a leading financial services provider for individuals and corporate clients. The Zacks Consensus Estimate for SMBK’s 2022 revenues indicates 18.5% year-over-year growth.

New York-based Paramount Group works as a fully-integrated real estate investment trust. The Zacks Consensus Estimate for PGRE’s 2022 bottom line indicates 3.3% year-over-year growth.