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American Express (AXP) Misses on Q1 Earnings, Reaffirms View
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American Express Company (AXP - Free Report) reported first-quarter 2023 earnings of $2.40 per share, missing the Zacks Consensus Estimate of $2.64 and our estimate of $2.61. The bottom line also decreased 12% year over year.
For the quarter under review, AXP’s total revenues net of interest expense increased 22% year over year to $14,281 million. The top line beat the Zacks Consensus Estimate by 1.9% and came above our estimate of $14,017.9 million.
The weak first-quarter 2023 earnings were caused by higher operating and customer engagement costs. It set aside more money for potential losses as inflationary pressure and a high interest-rate environment continue to put pressure on customers. Nevertheless, the negatives were partially offset by continued business momentum, better volumes and higher Card Member spending. AXP added 3.4 million proprietary cards in the quarter.
American Express Company Price, Consensus and EPS Surprise
Due to higher spending, network volumes jumped 14% year over year to $398.9 billion in the first quarter. Total interest income was $4,416 million in the first quarter, up 75% year over year. Provision for credit losses amounted to $1,055 million against the year-ago quarter’s provision benefit of $33 million. Setting aside such a huge amount is expected to help the company navigate through a volatile global economy.
Total expenses of $11,059 million increased 22% year over year and came above our estimate of $10,889.6 million, primarily due to higher client engagement costs, stemming from increased network volumes and higher service costs. Its business development costs rose 34% year over year in the quarter.
Segmental Performances
The U.S. Consumer Services segment recorded a pre-tax income of $1,130 million for the first quarter, witnessing a 26% drop from a year ago. Total revenues net of interest expense increased 25% to $6,583 million, courtesy of an increased net interest income from higher average loan volumes, as well as rising Card Member spending.
The Commercial Services segment delivered a pre-tax income of $630 million, which decreased 19% from a year ago. Total revenues net of interest expense were $3,492 million, which climbed 15%, attributable to higher Card Member spending.
The International Card Services segment recorded a pre-tax income of $189 million for the first quarter down 23% from a year ago, due to the strengthening of the U.S. dollar. Total revenues net of interest expense increased 22% to $2,510 million, driven by a rise in Card Member spending and higher revenues from foreign exchange conversion fees.
The Global Merchant and Network Services segment reported a pre-tax net income of $885 million, which increased 32% from the first quarter of 2022. Total revenues net of interest expense increased 23% to $1,741 million from the year-ago period, primarily driven by growing network volumes.
Corporate and Other posted a first-quarter pre-tax loss of $667 million, which deteriorated from the prior-year pre-tax loss of $514 million, due to a loss on Amex Ventures equity investments.
Balance Sheet (as of Mar 31, 2023)
American Express exited the first quarter with cash & cash equivalents of $41 billion, which increased from $34 billion at 2022-end. Total assets rose from $228 million at 2022-end to $236 million.
As of Mar 31, 2023, AXP’s long-term debt was $41 billion, down from $43 billion in fourth-quarter 2022. It also had a short-term borrowing of $2 billion.
Return on average common equity deteriorated to 30.1% in the first quarter from 34.1% in the fourth quarter.
Outlook
American Express reaffirmed 2023 revenue growth guidance of 15-17% from the 2022 level of $52,862 million. It expects 2023 earnings per share to be within $11-$11.40, up from the 2022 level of $9.85. In the long term, the company foresees revenue growth of more than 10% and earnings growth in the mid-teens.
The bullish outlook despite economic volatilities highlights the company’s confidence in its business momentum and consumer spending growth. However, it is building provisions and preparing for any potential defaults.
The Zacks Consensus Estimate for Euronet Worldwide’s 2023 earnings predicts 15.5% year-over-year growth. Over the past 30 days, EEFT has witnessed one upward estimate revision against none in the opposite direction.
The consensus mark for Lemonade’s 2023 earnings indicates a 6.5% year-over-year increase. Furthermore, the consensus estimate for LMND’s revenues in 2023 suggests 48.5% year-over-year growth.
The Zacks Consensus Estimate for Voya Financial’s 2023 earnings suggests 6.7% year-over-year growth. Also, the consensus mark for VOYA’s revenues in 2023 suggests 6.6% year-over-year growth.
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American Express (AXP) Misses on Q1 Earnings, Reaffirms View
American Express Company (AXP - Free Report) reported first-quarter 2023 earnings of $2.40 per share, missing the Zacks Consensus Estimate of $2.64 and our estimate of $2.61. The bottom line also decreased 12% year over year.
For the quarter under review, AXP’s total revenues net of interest expense increased 22% year over year to $14,281 million. The top line beat the Zacks Consensus Estimate by 1.9% and came above our estimate of $14,017.9 million.
The weak first-quarter 2023 earnings were caused by higher operating and customer engagement costs. It set aside more money for potential losses as inflationary pressure and a high interest-rate environment continue to put pressure on customers. Nevertheless, the negatives were partially offset by continued business momentum, better volumes and higher Card Member spending. AXP added 3.4 million proprietary cards in the quarter.
American Express Company Price, Consensus and EPS Surprise
American Express Company price-consensus-eps-surprise-chart | American Express Company Quote
Q1 Operational Performance
Due to higher spending, network volumes jumped 14% year over year to $398.9 billion in the first quarter. Total interest income was $4,416 million in the first quarter, up 75% year over year. Provision for credit losses amounted to $1,055 million against the year-ago quarter’s provision benefit of $33 million. Setting aside such a huge amount is expected to help the company navigate through a volatile global economy.
Total expenses of $11,059 million increased 22% year over year and came above our estimate of $10,889.6 million, primarily due to higher client engagement costs, stemming from increased network volumes and higher service costs. Its business development costs rose 34% year over year in the quarter.
Segmental Performances
The U.S. Consumer Services segment recorded a pre-tax income of $1,130 million for the first quarter, witnessing a 26% drop from a year ago. Total revenues net of interest expense increased 25% to $6,583 million, courtesy of an increased net interest income from higher average loan volumes, as well as rising Card Member spending.
The Commercial Services segment delivered a pre-tax income of $630 million, which decreased 19% from a year ago. Total revenues net of interest expense were $3,492 million, which climbed 15%, attributable to higher Card Member spending.
The International Card Services segment recorded a pre-tax income of $189 million for the first quarter down 23% from a year ago, due to the strengthening of the U.S. dollar. Total revenues net of interest expense increased 22% to $2,510 million, driven by a rise in Card Member spending and higher revenues from foreign exchange conversion fees.
The Global Merchant and Network Services segment reported a pre-tax net income of $885 million, which increased 32% from the first quarter of 2022. Total revenues net of interest expense increased 23% to $1,741 million from the year-ago period, primarily driven by growing network volumes.
Corporate and Other posted a first-quarter pre-tax loss of $667 million, which deteriorated from the prior-year pre-tax loss of $514 million, due to a loss on Amex Ventures equity investments.
Balance Sheet (as of Mar 31, 2023)
American Express exited the first quarter with cash & cash equivalents of $41 billion, which increased from $34 billion at 2022-end. Total assets rose from $228 million at 2022-end to $236 million.
As of Mar 31, 2023, AXP’s long-term debt was $41 billion, down from $43 billion in fourth-quarter 2022. It also had a short-term borrowing of $2 billion.
Return on average common equity deteriorated to 30.1% in the first quarter from 34.1% in the fourth quarter.
Outlook
American Express reaffirmed 2023 revenue growth guidance of 15-17% from the 2022 level of $52,862 million. It expects 2023 earnings per share to be within $11-$11.40, up from the 2022 level of $9.85. In the long term, the company foresees revenue growth of more than 10% and earnings growth in the mid-teens.
The bullish outlook despite economic volatilities highlights the company’s confidence in its business momentum and consumer spending growth. However, it is building provisions and preparing for any potential defaults.
Zacks Rank and Key Picks
American Express currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader finance space are Euronet Worldwide, Inc. (EEFT - Free Report) , Lemonade, Inc. (LMND - Free Report) and Voya Financial, Inc. (VOYA - 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.
The Zacks Consensus Estimate for Euronet Worldwide’s 2023 earnings predicts 15.5% year-over-year growth. Over the past 30 days, EEFT has witnessed one upward estimate revision against none in the opposite direction.
The consensus mark for Lemonade’s 2023 earnings indicates a 6.5% year-over-year increase. Furthermore, the consensus estimate for LMND’s revenues in 2023 suggests 48.5% year-over-year growth.
The Zacks Consensus Estimate for Voya Financial’s 2023 earnings suggests 6.7% year-over-year growth. Also, the consensus mark for VOYA’s revenues in 2023 suggests 6.6% year-over-year growth.