American Express (AXP, Financial) shares are at all-time highs, increasing 53% year-to-date. The company had high expectations to meet with its 3Q24 earnings report. Discover Financial Services (DFS, Financial) had already set a high bar with its Q3 earnings, showing a 10% growth in net interest income. AXP did surpass EPS expectations, driven by its affluent customer base's spending. However, billings and revenue growth slowed, and AXP downgraded its FY24 revenue guidance to "around 9%" from the previous 9-11%.
CFO Christope LeCaillec noted a slight caution in spending among cardholders, leading to a sell-the-news reaction. Despite this, AXP's results had several positive aspects:
- Effective cost management and a 6% increase in billed business to $387.3 billion led to a 6% year-over-year EPS increase to $3.49. AXP raised its FY24 EPS guidance to $13.75-$14.05, up from $13.30-$13.80, and expects mid-teens EPS growth in 2025, even without reaching 10% or 11% revenue growth.
- The affluent customer base ensures strong credit quality. The net write-off rate decreased to 2.2% from 2.4% last quarter. Provisions for credit losses were manageable at $1.4 billion, compared to $1.2 billion a year ago, due to a lower net reserve build year-over-year.
- Billed business growth slowed to 6% from 8% a year ago, mainly due to reduced spending in Travel & Entertainment (T&E) and Airline categories, where growth slowed to 6% from 13% a year ago.
Overall, AXP remains healthy, maintaining its status as a leading name in the credit card industry, thanks to solid execution and a strong customer base. The current selloff is viewed as a profit-taking pullback, with the company poised for mid-teens EPS growth next year.
