American Express Company (AXP) 2024 Q2 Earnings Call Summary

Optimistic Highlights

• Record Revenue and Earnings Growth: American Express reported an all-time high in revenue for Q2 2024, with earnings growing 44% year-over-year, or 21% after excluding a one-time gain. This strong performance led to an increase in EPS guidance for the full year.

• Increased Marketing Investments: The company plans to invest around $6 billion in marketing this year, up about $800 million versus last year, funded entirely by the core business's results.

• Strong Core Business Momentum: Despite a slower growth environment, American Express's core business continues to generate strong momentum, attributed to a loyal premium customer base, increasing scale, and successful strategic investments.

• Product Refreshes and Acquisitions: American Express is on track to refresh approximately 40 products globally by the end of the year, including the US consumer gold card. Acquisitions like Resy, Tock, and Rooam are expected to enhance the dining portfolio and digital offerings.

• Solid Credit Performance: The company's disciplined growth strategy and robust risk management practices have resulted in strong credit performance, with expectations for write-off rates to remain generally stable for the remainder of 2024.

Pessimistic Highlights

• Moderate Loan Growth: Year-over-year growth in loans and card member receivables demonstrated strong growth but is expected to continue moderating as 2024 progresses.

• Slower Spend Growth in Certain Categories: There was a noted slowdown in growth for certain travel and entertainment (T&E) categories, such as airlines and lodging, although restaurant spending remained strong.

Company Outlook

• Raised EPS Guidance: Based on the strong performance year-to-date and expectations for the remainder of the year, American Express raised its EPS guidance range for the full year to $13.30 to $13.80, up from $12.65 to $13.15 previously, while still expecting revenue growth in line with the 9% to 11% range for the year.

• Stable Spend Growth Expectations: The company continues to see stable spend growth across customer segments, spend categories, and geographies, supporting revenue expectations for the year.

Q & A Highlights

• Q: Can you expand on what you're seeing in the US consumer and SMEs? (Ryan Nash, Goldman Sachs)

  A: US consumer spending grew by 6%, influenced by Millennial and Gen-Z growth. Small business spending showed slight improvement. International spending was strong, up 13%. Retention and acquisition remain strong across segments. (Stephen Squeri)

• Q: Given results, do you lean towards the mid-to-lower end of your 9% to 11% revenue guide for '24? Where are you investing in marketing? (Donald Fandetti, Wells Fargo)

  A: Revenue growth is as expected, and marketing investments are focused on acquiring more cardholders, with the US consumer traditionally receiving more investment. (Stephen Squeri)

• Q: Can you contextualize the upcoming gold card refresh? (Sanjay Sakhrani, KBW)

  A: The refresh makes marketing dollars work harder, enhancing value for cardholders and aiding in new acquisitions. (Stephen Squeri)

• Q: Is the increased marketing spend due to competitors pulling back? (Craig Maurer, FT Partners)

  A: The $6 billion marketing spend is due to seeing opportunities within the credit box, not because of a slowdown in billings or competitors pulling back. (Stephen Squeri)

• Q: Has your incremental marketing spend changed materially from prior guidance? (Rick Shane, JPMorgan)

  A: The core business is generating more earnings than anticipated, allowing for increased marketing spend funded organically, with a slight increase in the marketing budget. (Christophe Le Caillec)

• Q: Can you revisit the credit quality outlook? (Jeff Adelson, Morgan Stanley)

  A: Credit write-offs are expected to be stable at about 2.1% for the remainder of the year, with a slight potential increase in reserve rates. (Christophe Le Caillec)

• Q: Do you still target mid-teens EPS growth off the higher 2024 EPS level? (Mark DeVries, Deutsche Bank)

  A: Yes, but the one-time Accertify gain will be adjusted for, allowing for a reset in marketing at a higher level for next year. (Stephen Squeri)

• Q: Can you discuss investments in digital banking? (Cristopher Kennedy, William Blair)

  A: Investments aim to increase engagement with small businesses and consumers, with more developments expected on this journey. (Stephen Squeri)

• Q: How are product refreshes impacting acquisitions and net card fee growth? (Terry Ma, Barclays)

  A: Product refreshes are on track, contributing to strong card acquisition numbers and retention rates, with net card fee growth expected to increase. (Stephen Squeri and Christophe Le Caillec)

• Q: Is the softer spending environment expected to continue, affecting discount revenue growth? (Saul Martinez, HSBC)

  A: Billing stability is expected, with discount revenue growth anticipated to be at current levels. Large and global spend deceleration was noted but not significantly impactful. (Christophe Le Caillec)

• Q: Will net interest income growth converge with loan growth by year-end? (Moshe Orenbuch, TD Cowen)

  A: Loan growth is expected to moderate, with net interest income growth also anticipated to moderate due to funding mix changes and yield improvements. (Christophe Le Caillec)

• Q: How should we think about the EPS guide given the second half outlook? (Mihir Bhatia, Bank of America)

  A: The guidance accounts for expected credit reserve builds and operating expenses, with EPS growth remaining high despite a slight increase in marketing spend. (Christophe Le Caillec)