Release Date: July 19, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- American Express Co (AXP, Financial) reported strong second quarter results with a 44% year-over-year earnings growth.
- Revenue reached an all-time high, driven by the core business, and the company raised its EPS guidance for the full year.
- The company plans to invest around $6 billion in marketing this year, funded entirely from core business results.
- American Express Co (AXP) continues to attract high-quality premium customers, with 24 consecutive quarters of double-digit growth in card fee revenue.
- The company has seen significant growth in its international card services, with a 13% increase in spending from international consumers and SMEs.
Negative Points
- There was a noted slowdown in certain travel and entertainment categories, such as airlines and lodging.
- US consumer spending showed a slight sequential decline, influenced by a slower growth economic environment.
- Commercial services growth was modest, with only a 2% increase in spending from US small and medium enterprise customers.
- Operating expenses, excluding the gain from the Accertify sale, were up 3% in the quarter.
- The company expects loan growth to continue to moderate as the year progresses, potentially impacting future revenue.
Q & A Highlights
Q: Steve, can you maybe expand on what you're seeing in the US consumer and SMEs? US consumer, we saw a little bit of a slowdown from eight to six. Are you seeing a broader slowdown in the consumer? Maybe just talk about what you're seeing on a same-store sales basis and then on the SME side, you obviously saw a slight uptick. So maybe if you could just expand on this both. Thank you.
A: Yeah. So I think look, in US consumer, you saw a little bit of a sequential decline. But also remember last quarter we had the extra day, so it's not really apples to apples, but within the US consumer was 6% up for the quarter continued to be strongly influenced by Millennial and Gen-Z growth. It's now up to 33% of our total billings and they're up 13%. And so we feel good where the US consumer is obviously organic spending. We'd like to see a little bit higher, but it is a slower growth economic environment. But one thing I will point out before touching on some SME, when our consumer a lot of their spending is discretionary. And for our consumer, if they decide they're going to pull back, they'll pull back a little bit on a discretionary, but they'll continue to pay their bills, which is why our credit numbers continue to be so strong and we continue to widen the gap between us and our competitors. So we feel like the US consumer has been pretty consistent, and we think it's going to be pretty consistent throughout the year. From a small business perspective, while there still is inorganic, decline year over year, that organic decline is less than it was last quarter and the quarter before that. So we're seeing slight improvement. In both the US consumer and in small business, retention is still strong and acquisition is still strong, and so what I like about where we're sitting is as the economy rebounds, whenever that may be organic, we'll pick up driving future growth. And then just the last comment on international, you didn't ask about it. Because probably it is so strong it's up 13% in the quarter and even small business and commercial within international is up 14%. So we feel good about where we are right now.
Q: Can you talk a little bit, I know you're reiterating your revenue guide for '24 of 9% to 11%. But just given results, do you think you're sort of more leaning towards the mid to lower end? And then can you talk about where you're investing in marketing in terms of US consumer, commercial and international?
A: Yes. So I think look, quarter to date we're at about 10%, both reported and FX, and for the quarter we were at 8% and 9%. So I think we're going to wind up within that range. And I think depending upon how organic either rebound or stays where it is, we'll determine where we wind up within that range. But we're very comfortable with sort of the 9% to 11%. As far as investment, we do is, we will look at the myriad of opportunities that we have to acquire more card holders. And depending upon at any given point in time because our acquisition engine is a very dynamic engine and things change all the time. We will allocate those investments either US consumer small business or international. Traditionally the US consumer business would get more of that investment followed either by international and small business. But as I sit here today, it's hard to say exactly what percentages will be, but it will be focused on acquiring more cardholders. And the key about that is, is that when we acquire cardholders in the second half of the year, it's really not going to drive spending for us this year. It will -- what we're doing here is we're investing for the medium and the longer term, and it will acquire cardholders that will spend for us for us next year. So I think the takeaway from the point that Christophe made, the point that I made is the businesses -- we feel the business is strong, right now that we're able to and we invest more and we have line of sight into those opportunities without compromising on credit.
Q: Steve, I think you I heard you say a Gold Card refresh will probably be announced shortly I guess. Just can we contextualize what that means? I assume it helps card fees next year. And then just the spend trends intra-quarter were those pretty stable? Sounds like they were, but just clarify.
A: Yeah. So not going to get into the details of the card. But what I would say is, what are the big advantages of the refreshes, is it makes the marketing dollars work a lot harder. So what happens is when you do a product refresh, whether it's gold, whether it's delta, whether it's Hilton or whether it's another gold or platinum card that we do internationally. What happens is you're able to provide more value to those cardholders that already have the product, you may be able to upgrade a green to gold and obviously you're able to acquire even new cardholders with that. And what happens is as you go out and acquire new cardholders. You will have buzz around the fact that we have a new card and it has obviously a different value proposition and you'll have the marketing that goes with it. So when you do a refresh and you have your marketing spend your marketing dollars work a little bit, the overall value proposition is a lot stronger and it works a little bit harder for you.
Christophe Le Caillec: And when it comes to the intra-quarter billings, we typically don't talk about those and there's nothing much to say here. So there's nothing noticeable in terms of monthly billing growth.
Q: I wanted to ask about the marketing spend and it seems like you're putting the pedal down. So typically, when American Express does this, it's because -- or at least in the past, you've seen this happened because Amex is either anticipating or already seeing a slowdown from competitors in terms of their market activity and you see a significant opportunity to gain share. Is that -- is any of that thought process going into this year? And second, business development costs were lower than what was being forecast. So I'm curious if that's due to some slower partner growth that might have [meant] less incentives or what went into that? Thanks.
A: Yeah. So a couple of points, I think $6 billion for the year in total marketing is not an area we've ever been in before and an $800 million year over year increase is a pretty significant increase. I think that when we make a decision, Craig, to put more marketing dollars in, is because we see the opportunity. And if you look at where we have been from a marketing spend for the first two quarters, that would show a trajectory of $6 billion. So we're really keeping all of our marketing spending consistent quarter to quarter because we do see the opportunity. And we see the opportunity within the credit box and within the dimensions of who we're looking for our cardholders. It's not due to a -- we're not making this investment because of a slowdown in billings
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
