American Express Co Earnings - Q1 2025 Analysis
Positives
- Revenue grew by 8% FX-adjusted in Q1, or 9% excluding the impact of leap year and EPS of $3.64.
- Goods & Services spending sustained the uptick seen in Q4 of 2024, growing at a faster pace than in 2024.
- The company continued to grow its customer base, adding 3.4 million new cards in Q1.
- The company delivered revenues of $17 billion, up 8% YoY on an FX-adjusted basis, or 9% excluding the leap year impact, and generated net income of $2.6 billion or $3.64 per share.
- The company increased the dividend by 17% in Q1.
Q&A Highlights - Q1 2025
Analyst asked about the impact of tariffs on American Express' business segments.
Stephen J. Squeri, CEO of American Express, stated that small businesses would likely be the most affected by tariffs, as they may not be able to compete effectively in the market. He also mentioned that consumers tend to spend less and revolve less during periods of economic uncertainty, which can impact the company's balance sheet. However, he noted that American Express is proactively monitoring the situation and has a self-liquidating balance sheet that can help mitigate risks.
Analyst asked about the impact of pull-forward spending on American Express' revenue and earnings.
Stephen J. Squeri, CEO of American Express, stated that the company has not seen any pull-forward spending in the first quarter, and that consumer spending has been consistent with historical trends. He also mentioned that Card Member spending has not been significantly impacted by stock market fluctuations or consumer confidence levels. Additionally, the company has a high number of travel bookings, including international bookings, indicating that customers are still booking trips despite economic uncertainty.
Analyst asked about American Express' guidance for revenue and EPS and its ability to hit its aspirational goal of 10% revenue.
Stephen J. Squeri, CEO of American Express, stated that the company is confident in its ability to hit its guidance range for both revenue and EPS. He noted that the company has an aspirational goal of 10% revenue, but also has the flexibility to adjust its approach if necessary. He emphasized that the company is running for the long term and will continue to invest in opportunities that align with its strategic goals.
Analyst asked about the company's ability to grow fees in the current environment.
Stephen J. Squeri, CEO of American Express, stated that the company is still committed to refreshing its products and raising fees when appropriate. He emphasized that the company's fee decisions are based on value, and that Card Members receive more value than they put in. He also noted that the company's playbook is to raise fees when it adds significant value.
Analyst asked about the company's tactical approach and where it sees opportunities.
Stephen J. Squeri stated that the company is constantly upgrading its technology infrastructure and investing in long-term projects. He mentioned that the company recently completed the Center acquisition, which he believes will be important for small business and middle market. He also noted that the company is committed to its refresh strategy and will continue to enhance and develop its products and services.
Analyst asked about the company's capital return policy and how it relates to its investment strategy.
Christophe Le Caillec, CFO of American Express, explained that the company's capital return policy is based on its CET1 ratio, which targets between 10% and 11%. He noted that the company distributed the amount of capital it had planned and increased its dividend by 17% in the first quarter. He emphasized that the company's capital return policy is focused on maintaining a strong balance sheet and supporting its long-term investment strategy.
Analyst asked about the company's spending progression in January through March, specifically in the affluent consumer segment, and whether the resilience carried through despite headline risk and stock market volatility in March.
Stephen J. Squeri: The company's spending progression was consistent throughout January, February, and March, with no major changes or fluctuations. The first 11-12 days of April have seen a slight increase in spending, but overall, the trend has been consistent. The company has also seen a slight uptick in small business spending towards the end of March, but the increase was minor. The company feels comfortable with its unemployment level and guidance, as it has incorporated a 5.7% unemployment rate into its macro outlook.
Analyst asked about the company's 5.7% unemployment rate incorporated into its macro outlook and how it affects the company's credit reserve calculation.
Christophe Le Caillec: The 5.7% unemployment rate represents the peak unemployment rate for the purpose of the company's credit reserve calculation. It does not mean that the company anticipates a sudden increase in unemployment to that level. The company runs multiple scenarios and the math is complicated, involving lifetime losses. The 5.7% rate is used as a benchmark for the company's credit reserve calculation.
Analyst asked about any under the hood issues with the company's Millennial and Gen Z cohort, specifically regarding student loan repayment starting.
Stephen J. Squeri: The company has not seen any under the hood issues with its Millennial and Gen Z cohort. The cohort's spend growth was up 15% in the US Consumer business and 22% internationally in the quarter. The company's Millennial and Gen Z cohort is a growing segment, with delinquency rates that are lower than the industry average, and higher FICO scores. The company does not disclose the actual card account billings for this cohort, but it did disclose it at the Investor Day, and may do so at another point in time.
Analyst asked about the company's view on consumer confidence and wealth effect not impacting spend, and also about the percentage of SMB business related to e-commerce businesses.
Stephen J. Squeri, the company's CEO, stated that the company does not believe that consumer confidence and wealth effect will impact spend, based on historical data from the company's cardholders. He also mentioned that the company looks at FICO scores, but there are other factors that go into making credit decisions. He added that the company has seen an acceleration in FICO scores, but it is not the only thing they look at.
Analyst asked about the company's approach to marketing budget and refreshes in the face of macro uncertainty.
Stephen J. Squeri, the company's CEO, stated that the company has not made any changes to its marketing budget, and does not plan to stop refreshes. He mentioned that refreshes do not happen overnight, and that the company has confidence in the refreshes once they are completed.
Analyst asked about enhancing the value proposition for Millennials and Gen Z, and other categories where the company can differentiate itself without relying on rewards.
Stephen J. Squeri, CEO of American Express, explained that the company has focused on building a moat around the restaurant industry, with the acquisition of Resy, Tock, and Rooam, as well as the rewards accelerator and the Resy Credit. He also mentioned the closed loop nature of these services, which appeals to both Card Members and restaurant customers. He said that the company will continue to look for other verticals where a closed loop model makes sense, such as lodging and airline.
Analyst asked about the expense flex in the model as the company continues to invest.
Stephen J. Squeri, CEO of American Express, explained that the company has a lot of expense flexibility, both in terms of marketing and OpEx. He mentioned that the company will not cut expenses to make the EPS number if they see good opportunities for growth. Instead, they will invest for the long term and make the right longer-term decisions.
