American Express (AXP) Tops on Q2 Earnings, Reaffirms View
American Express Company AXP reported second-quarter 2023 earnings per share (EPS) of $2.89, beating the Zacks Consensus Estimate by 3.2%. The bottom line increased 12.5% year over year.
For the quarter under review, AXP’s total revenues net of interest expense increased 12.4% year over year to $15,054 million. However, the top line missed the Zacks Consensus Estimate by 2.3%.
The better-than-expected second-quarter 2023 earnings benefited from continued business momentum, better volumes and higher card member spending. Increased compensation costs and higher operating and customer engagement costs partially offset the positives.
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 8% year over year to $426.6 billion in the second quarter. Total interest income was $4,775 million in the second quarter, up 71% year over year. Provision for credit losses amounted to $1,198 million against the year-ago quarter’s provision benefit of $410 million. Setting aside such a huge amount is expected to help the company navigate through a volatile global economy.
Total expenses of $11,122 million increased 7% year over year and came lower than our estimate of $11,632.5 million, primarily due to higher client engagement costs, stemming from increased network volumes and higher service costs.
Segmental Performances
The U.S. Consumer Services segment recorded a pre-tax income of $1,250 million for the second quarter, witnessing a 2% drop from a year ago. The metric missed our estimate of $1324.2 million. Total revenues net of interest expense increased 17% to $6,930 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 $713 million, which decreased 8% from a year ago. The metric missed our estimate of $852.9 million. Total revenues net of interest expense was $3,729 million, which climbed 7%, attributable to higher average loan volumes.
The International Card Services segment recorded a pre-tax income of $253 million for the second quarter, up 38% from a year ago. Total revenues net of interest expense increased 10% to $2,585 million, driven by a rise in card member spending and higher revenues from card fees.
The Global Merchant and Network Services segment reported a pre-tax net income of $963 million, which increased 20% from the second quarter of 2022. Total revenues net of interest expense increased 14% to $1,863 million from the year-ago period, primarily driven by growing network volumes.
Corporate and Other posted a second-quarter pre-tax loss of $445 million, which improved from the prior-year pre-tax loss of $493 million.
Balance Sheet (as of Jun 30, 2023)
American Express exited the second quarter with cash & cash equivalents of $43 billion, which increased from $34 billion at 2022-end. Total assets rose to $245 million from $228 million at 2022-end.
As of Jun 30, 2023, AXP’s long-term debt was $47 billion, up from $43 billion in fourth-quarter 2022. It also had a short-term borrowing of $2 billion.
Return on average common equity deteriorated to 34.6% in the second 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 EPS to be in the range of $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).
Investors interested in the broader finance space can also check better-ranked companies like Burford Capital Limited BUR, Houlihan Lokey, Inc. HLI and StoneX Group Inc. SNEX. Each of these companies presently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Based in Saint Peter Port, Guernsey, Burford Capital offers legal finance products and services worldwide. The Zacks Consensus Estimate for BUR’s 2023 EPS is pegged at $2.16, indicating a massive jump from 14 cents a year ago.
Los Angeles-based Houlihan Lokey is an investment banking company. The Zacks Consensus Estimate for HLI’s 2023 earnings implies 6.6% year-over-year growth. Houlihan Lokey beat earnings estimates in all the last four quarters, with an average of 16.8%.
The bottom line of StoneX Group outpaced the Zacks Consensus Estimate in three of the trailing four quarters and missed once, the average surprise being 20.5%. The consensus mark for SNEX’s 2023 earnings has moved 0.8% north in the past 30 days.
The Zacks Consensus Estimate for SNEX’s 2023 earnings indicates a 3.4% rise, while the same for revenues suggests 38.7% growth from the respective prior-year reported figures.
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