American Express (AXP, Financial) has outperformed Q1 earnings per share (EPS) expectations, showcasing a 7% year-over-year increase in member spending despite the challenges of high interest rates. This achievement highlights AXP's competitive edge, rooted in its younger, affluent customer demographic that can withstand the pressure of rising interest rates and continue to spend vigorously.
Unlike major banks such as JPMorgan Chase (JPM, Financial) and Bank of America (BAC, Financial), which experienced a decline in net interest income (NII) due to slower loan growth and rising deposit costs, AXP's NII soared by 26% year-over-year to $3.77 billion. This growth significantly outperformed Discover Financial Services' (DFS, Financial) NII increase of 11% in the same period, underscoring the positive impact of rising interest rates on AXP's performance.
The company's resilience is further evidenced by its stable loan performance, with loans 30+ days past due remaining consistent at 1.3% in Q1. This stability, even in the face of higher interest rates, contrasts with DFS's 30+ day delinquency rate, which saw a significant year-over-year increase to 3.83%.
However, AXP has not been entirely unaffected by macroeconomic challenges. Notably, spending on its network, including the traditionally strong Travel & Entertainment (T&E) category, has decelerated. T&E spending grew by 8% on an FX-adjusted basis in Q1, a slowdown from previous quarters.
Despite surpassing Q1 EPS estimates, AXP has maintained its FY24 EPS guidance at $12.65-$13.15, signaling caution about the year ahead amidst macro and geological uncertainties. This conservative outlook comes as a surprise, especially as the company's stock continues to rally, likely due to investor confidence in AXP's strategic low guidance.
In response to ongoing uncertainties, AXP has strategically managed expenses, increasing consolidated expenses by only 3% to $11.4 billion in Q1. This fiscal prudence comes as AXP successfully grows its membership base, with new card acquisitions climbing to 3.4 million during the quarter, even as marketing expenditures were reduced.
AXP's performance in Q1 further cements its status as a leader in the credit card industry, leveraging its affluent customer base to navigate a challenging economic landscape effectively.
