American Express Company (NYSE: AXP) is a globally integrated payments company that provides customers with access to a wide range of products, insights, and experiences that enrich lives and build business success. As a leader in providing credit and charge cards to consumers, small businesses, mid-sized companies, and large corporations around the world, American Express has demonstrated its ability to generate consistent financial performance, even in the face of a challenging macroeconomic environment.

Financials

For the full year 2023, American Express reported annual net income of $8,374 million, annual revenue of $60,363 million, annual operating cash flow of $18,559 million, and annual free cash flow of $16,996 million. These robust financial results underscore the company's strong business model and its ability to deliver value to its diverse customer base.

In the second quarter of 2024, American Express continued to build on its momentum, reporting total revenues net of interest expense of $16,333 million, up 8% year-over-year. Net income for the quarter was $3,015 million, or $4.15 per share, compared to net income of $2,174 million, or $2.89 per share, in the prior-year period. This strong performance was driven by the company's premium, high credit-quality customer base, as well as the greater scale and operating leverage it has achieved over the last several years and the ongoing success of its strategic investments to enhance its Membership Model.

Billed Business Performance

Billed business, which represents transaction volumes on American Express' payment products, grew by 5% year-over-year (6% on an FX-adjusted basis) in the second quarter, consistent with the past few quarters and in line with a slower growth environment. This stability in spend growth was also visible across spending categories, with goods and services (G&S) growing by 5% year-over-year (6% on an FX-adjusted basis) and travel and entertainment (T&E) spending growing by 6% (7% on an FX-adjusted basis).

Segment Performance

The company's U.S. Consumer Services segment, its largest business, saw billed business grow by 6% year-over-year, with continued strength in spending by Millennial and Gen-Z Card Members. The Commercial Services segment grew billed business by 2% on a year-over-year basis, reflecting continued modest growth from U.S. small and mid-sized enterprise (SME) Card Members. The International Card Services segment delivered the highest growth, with billed business up 10% year-over-year (13% on an FX-adjusted basis), driven by continued growth in spend across all regions and customer types outside the United States.

Revenue Diversification

The diversification of American Express' revenue streams was also evident in the second quarter, with growth across all major revenue lines. Discount revenue, the company's largest revenue line, grew by 4% year-over-year. Net card fees increased by 15% year-over-year, reflecting high levels of new card acquisition and Card Member retention, as well as the company's cycle of product refreshes. Net interest income increased by 20% versus the prior year, primarily reflecting growth in the company's revolving loan balances.

Risks and Challenges

American Express' focus on disciplined growth and risk management is also reflected in its credit performance. The company's net write-off rate for Card Member loans and receivables remained best-in-class at 2.4% in the second quarter, supported by its premium global customer base and strong risk management practices. Provisions for credit losses increased, primarily driven by higher net write-offs, partially offset by a lower reserve build compared to the prior year.

Recent Developments

The company's operating expenses decreased 13% in the second quarter, primarily reflecting the gain recognized on the sale of its Accertify business, partially offset by higher compensation costs to support business growth. Excluding the Accertify gain, operating expenses grew at a slower pace than revenue growth, demonstrating the earnings power of American Express' core business and its ability to invest in growth initiatives at elevated levels while maintaining strong expense discipline.

Liquidity

American Express' robust capital, funding, and liquidity positions provide the company with significant flexibility to maintain a strong balance sheet and support future business growth. As of June 30, 2024, the company's Common Equity Tier 1 (CET1) risk-based capital ratio was 10.8%, within its target range of 10% to 11%. During the second quarter, the company returned $2.3 billion of capital to shareholders through share repurchases and common stock dividends.

Outlook

Looking ahead, American Express has raised its earnings per share (EPS) guidance for the full year 2024 to a range of $13.30 to $13.80, up from the previous range of $12.65 to $13.15. This revised guidance reflects the strength of the company's core business, which is comfortably generating mid-teens EPS growth, even in a slower growth environment. The company also plans to invest around $6 billion in marketing this year, up about $800 million versus 2023, all of which will be funded from the results of its core business.

Conclusion

In conclusion, American Express' strong second quarter results and raised full-year guidance demonstrate the earnings power of its unique business model, driven by its premium, high credit-quality customer base, greater scale and operating leverage, and the ongoing success of its strategic investments. The company's diversified revenue streams, disciplined growth and risk management, and robust capital and liquidity positions position it well to navigate the current macroeconomic environment and continue delivering sustainable, profitable growth for its shareholders.