- Shares drop on first quarter earnings miss
- Big jump in provisions for bad and doubtful debts
- Resilient performance expected in 2023
Credit card company American Express (AXP:NYSE) missed first quarter earnings estimates on Thursday after setting aside more provisions for bad debts and higher than expected operating costs.
It is the second consecutive quarter where the credit card giant has missed Wall Street estimates. The shares fell more than 5% before rallying to close 1% lower at $163.28.
Persistently high inflation and a rapid rise in borrowing costs is beginning to squeeze consumers, and despite its relatively affluent customer base Amex increased the money put aside for bad and doubtful debts to $1.1 billion from $33 million last year.
Expenses jumped 22% to $11.1 billion, which topped expectations of $10.4 billion, reflecting higher compensation costs.
UBS analysts said: ‘While the elevated provision does not come as a surprise, the miss on expenses is likely the driving force behind the shares' move lower.’
First-quarter profit to the end of March fell 13% to $1.8 billion, which translated into EPS (earnings per share) of $2.40, well below analysts’ forecasts of $2.66 according to Refinitiv data.
On a more positive note, revenues excluding interest costs increased 22% to $14.3 billion which was slightly ahead of expectations of $14.03 billion.
RESILIENT 2023 PERFORMANCE EXPECTED
Looking ahead to the rest of the year, the company reaffirmed its 2023 growth target of between 15% and 17% with EPS expected to be between $11 and $11.40 compared with consensus forecasts of $11.1.
Chief executive Stephen Squeri said the company was ‘mindful’ of the mixed signals in the macroeconomic environment but encouraged by its customers' resilience against the uncertain backdrop.
‘The economy is definitely bifurcated, and I think at the lower end of the economy you are seeing some stress, but we just don't have that’, Squeri said.
Spending on travel and entertainment surged 39% year-on-year in the quarter year and Squeri said the firm was seeing strong demand for summer travel.
