American Express Co. continued to benefit from strong spending growth in the latest quarter, with particular momentum in the travel and entertainment categories.
The card giant on Thursday morning posted first-quarter net income of $1.8 billion, or $2.40 a share, down from $2.1 billion, or $2.73 a share, in the year-earlier period. The FactSet consensus called for earnings of $2.66 a share.
Amex shares closed down 1% in Thursday’s session.
Chief Executive Stephen Squeri called out “particularly robust” spending on travel and entertainment in Amex’s earnings release.
The company benefited from a 16% boost in card-member spending on a currency-neutral basis in the quarter, while witnessing the addition of 3.4 million new proprietary cards. Amex saw record quarterly account acquisitions for its U.S. Consumer Platinum and Gold, U.S. Business Platinum and Delta co-brand cards.
Millennial and Gen Z customers made up more than 60% of the company’s new consumer accounts during the period, and they also generated card spending that was 28% higher than year-earlier levels.
Amex “completely dominates the above-average-income people in the largest adult population group [millennials] who are just going to get better and better as time goes by,” said Bill Smead, chief investment officer of the Smead Value Fund SMVLX,
While millennials have hit life milestones later than older generations, that may be beneficial for Amex because they could be doing things like buying children’s apparel, planning family vacations and purchasing groceries while at higher salary ranges than they would have been at had they started families younger, in Smead’s view.
“You make more money at 45 than you do at 30,” he said.
The company posted a 22% bump in consolidated expenses during the quarter, reflecting “higher customer engagement costs, driven by higher network volumes and increased usage of travel-related benefits.”
Amex cardholders can redeem rewards in various ways, and Chief Financial Officer Jeff Campbell told MarketWatch that redemption on travel is the “highest-cost thing” people could do, from the company’s perspective. The omicron wave impacted travel demand in the first quarter of 2022, but there’s been “particularly robust demand for travel” more recently.
Campbell said that the strong interest in travel is overall ideal for Amex, even if it means the company has to pay more when consumers redeem rewards on perks in the category. “Our company has a particular strength in travel,” he said. “Our most premium products … are particularly travel-oriented. When demand for travel is strong, that’s a very good thing for the company overall.”
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Amex disclosed that the total provision for credit losses was $1.1 billion, “reflecting higher net write-offs and a net reserve build of $320 million.”
Campbell said that write-off trends remain very strong relative to prepandemic levels.
The company reiterated its full-year outlook for 15% to 17% revenue growth and $11 to $11.40 in earnings per share, and Campbell told MarketWatch that Amex’s management expects earnings to sequentially strengthen in moving through the year.
Campbell said that Amex is watching growth in goods and services spending, which slowed a bit in the U.S. as the quarter went on, but “overall our customers continue to show resiliency in the face of the clearly slower-growth high-inflation environment that we’re in.”
Squeri noted in the earnings release that American Express is “confident in our ability to achieve our longer-term growth-plan aspirations.”