American Express Company (NYSE:AXP) reported robust second-quarter 2023 earnings per share (EPS) of $2.89, surpassing the Consensus Estimate by 3.2%. The bottom line demonstrated significant growth of 12.5% compared to the previous year.

During the quarter, AXP’s total revenues net of interest expense reached $15,054 million, marking a strong year-over-year increase of 12.4%. However, the top-line figure fell short of the Consensus Estimate by 2.3%.

The impressive earnings performance in the second quarter was driven by continued business momentum, increased volumes, and higher spending by card members. While these factors contributed positively to the results, higher compensation costs and elevated operating and customer engagement expenses partially offset the gains.

Operational Performance in Q2

Notably, network volumes saw a remarkable 8% year-over-year increase to reach $426.6 billion in the second quarter, largely due to higher spending. Total interest income also surged by 71% to $4,775 million in the second quarter compared to the previous year. On the other hand, provisions for credit losses amounted to $1,198 million in the second quarter, in contrast to a provision benefit of $410 million in the same period last year. This provision set aside indicates the company’s preparedness to navigate through a volatile global economy.

Total expenses for the quarter came in at $11,122 million, reflecting a 7% year-over-year increase. However, this figure was lower than the estimate of $11,632.5 million, mainly due to higher client engagement costs driven by increased network volumes and service expenses.

Segmental Performances

The U.S. Consumer Services segment reported a pre-tax income of $1,250 million for the second quarter, experiencing a 2% decline from the previous year. The metric fell short of expectations at $1,324.2 million. Total revenues net of interest expense in this segment rose by 17% to $6,930 million, primarily attributed to increased net interest income from higher average loan volumes and higher card member spending.

In the Commercial Services segment, pre-tax income amounted to $713 million, reflecting an 8% decline from a year ago and missing the estimate of $852.9 million. Total revenues net of interest expense in this segment reached $3,729 million, climbing 7% due to higher average loan volumes.

The International Card Services segment reported a pre-tax income of $253 million for the second quarter, marking a significant 38% increase from the previous year. Total revenues net of interest expense in this segment rose by 10% to $2,585 million, driven by a rise in card member spending and increased revenues from card fees.

The Global Merchant and Network Services segment witnessed a pre-tax net income of $963 million, displaying a solid 20% increase from the same period in 2022. Total revenues net of interest expense in this segment increased by 14% to $1,863 million, primarily driven by growing network volumes.

The Corporate and Other segment posted a second-quarter pre-tax loss of $445 million, an improvement from the pre-tax loss of $493 million in the previous year.

Balance Sheet Highlights

As of June 30, 2023, American Express had cash & cash equivalents amounting to $43 billion, up from $34 billion at the end of 2022. Total assets also increased to $245 million from $228 million at the end of 2022.

AXP’s long-term debt as of June 30, 2023, was $47 billion, up from $43 billion in the fourth quarter of 2022. Additionally, the company had a short-term borrowing of $2 billion.

Looking Ahead

American Express reaffirmed its revenue growth guidance for 2023, expecting a 15-17% increase from the 2022 level of $52,862 million. The company also predicts 2023 EPS to be in the range of $11-$11.40, up from the 2022 level of $9.85. In the long term, AXP foresees revenue growth of over 10% and earnings growth in the mid-teens.

Despite economic volatility, American Express remains optimistic about its business momentum and consumer spending growth, as evident from its positive outlook. The company is also prudently preparing for potential defaults by building provisions.

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