How Amex's CEO is addressing borrower stress – American Banker

update: This article includes commentary from Amex management and analysts.

Signs of weakness in American Express' consumer base on Friday tempered an otherwise strong earnings report.

“Organic spending hasn't been very strong,” Chief Executive Officer Steve Squery said on the credit card lender's earnings call. “If cardholders lose confidence, they will pull back a little bit, but they will continue to pay their bills.”

American Express posted record sales for 10 consecutive quarters and raised its outlook for 2024, but the company also noted a recent increase in card payment delays.

Amex reported third-quarter earnings per share of $3.49, up 6% year-over-year and beating analysts' consensus estimates of $3.29. Net income was $2.5 billion, an increase of 2% from the previous year.

Revenue rose 8% year over year to $16.6 billion, matching analyst expectations of $16.65 billion, according to Seeking Alpha.

Amex raised its full-year EPS forecast to $13.75-14.05 from the previous estimate of $13.30-13.80. AmEx expects full-year sales growth to be at the lower end of the 9% to 11% guidance range it set at the beginning of the year.

Billings increased 6% year-over-year to $387 billion in the third quarter, but net charge-offs for card payments more than 30 days past due were 1.3%, up from 1.2% a year ago. and rose slightly. .

The increase in late payments is consistent with signs that consumer attitudes are softening. Some financial institutions Also reported in Q3. Investors have been looking for signs such as: consumption expenditure As inflation has soared over the past two years, loan losses have declined and charge-offs and delinquencies have increased.

AmEx on Friday reported a consumer net charge-off rate of 2.2% in the third quarter, down from 2.4% in the second quarter. Year-to-date, the amortization rate was 2.3%, up from 1.9% in Q1 2023. The consumer credit card delinquency rate was 1.3% in the third quarter, up from 1.2% in the second quarter.

The company's delinquency rate was 1.3% in September 2023 and 1.55% in September 2019 (credit card companies have recently used 2019 performance as a way to gauge the impact of the COVID-19 pandemic and subsequent recovery). ).

Additionally, AmEx's net charge-off rate was 1.9% in September, up from 2.2% in August. Net charge-off rates were 1.7% in September 2023 and 2% in September 2019. Consumer loan balances fell to $86.8 billion in September from $87.3 billion in August.

“Our customer base is reliable,” Squery said. “Nothing showing to indicate our credit indicators [are declining]. ”

Amex is actively developing payments and financial services products for small businesses, driven by acquisitions of small business lenders cabbage Managers emphasized that investing in small and medium-sized businesses is long-term, and said AmEx is indifferent to cyclical deterioration in economic conditions for companies.

Squery said acquisitions and retention of small businesses are good, but organic spending is down, arguing that this will improve as economic conditions progress.

On the consumer side, Amex recent quarter The company suggests it is better positioned to weather an economic downturn because its high-income customers are less price-sensitive than other card issuers and lenders. amex stock price It rose from about $149 a year ago to about $286 on Thursday.

AmEx also noted a “slight deceleration” in restaurant spending in the third quarter. “But we're not too worried about that…We're bullish on the restaurant industry,” Squery said.

AmEx has made restaurants a key part of its strategy, and Squery said Friday that restaurants are the company's fastest growing travel and entertainment segment.

Amex acquired reservation platform Resy in 2019. Squery said AmEx has registered 50 million users since the acquisition, and Resy offers a pool of potential customers who shop at high-end restaurants but don't yet have an AmEx card. AmEx acquired reservation and event management company Tock earlier this year. It also acquired Rooam, a mobile payments company specializing in restaurants and entertainment venues.

According to , restaurant spending is expected to exceed $1 trillion in the United States for the first time in 2024. National Restaurant Association.

“Competition in the dining space is fierce, and we believe our model positions us well,” Squery said.

Eric Glover, a principal at Intrepid Ventures, said it makes sense for AmEx to look to fine-dining restaurants in the long run to enhance its offerings to cardholders and restaurants.

“Amex cannot control the macroeconomic environment,” Glover said. “However, given the relative maturity of the US electronic payments market, to foster long-term growth and have prospects for sustainable double-digit growth, AmEx is strengthening its position overseas. did.”

But that's easier said than done, Glover said. “Amex has network critical mass in the United States, which is its largest market,” he said. “It's not a major payments network in any country overseas. Even in a small number of countries, it's going to be a challenge to get there.”

In a research note posted after AmEx's results, Jefferies wrote that the international division had the best results, the younger generation continued to slow down and the company's claims business was slightly weaker than expected. AmEx claims Gen Z and Millennials will be a tailwind for future growth, noting that these two groups have double the lifetime value of other age groups.

“Given this and the strong performance, [third-quarter] As a result, stock prices may experience modest declines in the near term,” Jeffries said.[Amex] EPS will be higher but will hit the lower limit. [projections]This is consistent with the general narrative that the amount of business billed is decreasing. ”

William Blair was more bullish. “While expectations have been elevated, we believe the growth opportunity remains significant and the valuation remains attractive” for AmEx, the analyst said in a post-earnings report.

Jefferies kept its outlook on AmEx stock unchanged, noting that the company's management expects loan growth to slow in the coming quarters and that delinquency and charge-off rates are manageable.

BTIG recently downgraded AmEx from Neutral to Sell, arguing that the company's fundamentals will deteriorate despite the company's strong growth forecast. HSBC downgraded AmEx's rating from buy to hold, saying there isn't much room for the stock to rise despite the company's strong earnings.

Among other payment companies, Visa reported its results on October 29th, and Mastercard reported its results on October 31st. visa and master card Both men emphasized that payment volumes have remained steady over the past two years. Mastercard announces layoffs Immediately after the last quarterly financial report.

synchrony and discover Both companies this week reported revenue increases but warned of weak consumer performance as the economy emerges from a period of high inflation and interest rates.