A stream of layoff announcements have contributed to fears of a potential recession, though American Express contends the impact on its own business should be muted.
"You've seen some headlines of individual companies that are going through layoffs," said Steve Squeri, CEO of Amex, during Friday's earnings call, adding that despite the mass layoffs most companies that employ consumers in Amex's base still have a higher headcount than before the pandemic. "Even with the rightsizing going on, unemployment is still under 4%."
For the quarter ending December 31, American Express reported profit of $2.07 per share, missing analysts' expectations of $2.22 per share. Net income decreased 9%, to $1.57 billion, from about $1.69 billion for the prior year's fourth quarter. Total revenue minus interest expense grew 17%, to $14.8 billion, from about $12.64 billion the prior year.
For the full year 2023, Amex forecast growth between 15% and 17% and earnings per share of $11 to $11.40. That beat analysts' projections of $10.55 per share, according to Refinitiv IBES. Amex also announced it will boost its dividend by 15%, which caused the company's stock to rise 5% in premarket trading on Friday.
Analysts pressured Amex executives on the current job losses, which are shifting from service sector workers that were fired during the early phases of the pandemic to higher-earning professional jobs in the most recent months. Firms such as Citigroup, Intel, Johnson & Johnson, Phillips 66 and The Walt Disney Co. have fired thousands of professional staff, according to tracking from
Amex has tightened underwriting over the past year, and the hurdle for approval is higher than before the pandemic, Squeri said.
"We can only run the business based on what we're seeing," Squeri said. "We are still seeing high consumer growth in the U.S. and consumer growth in international markets."
Amex's earnings follow earnings reports from
For the most recent quarter ending December 31, Amex reported a strong holiday spending season despite inflation, helping payment volume to rise 12% over the prior year's fourth quarter. On the downside, Amex reported a $234 million impact from net losses in the Amex Ventures investment unit during the fourth quarter, compared to $767 billion in net gains for the full year 2021. This reflects the correction in broader startup funding in technology and other volatile sectors.
"There is clearly uncertainty in the macroeconomic environment," said CFO Jeff Campbell. Amex's forward guidance considered slowing economic growth, though the company would shift strategy should the economy slow more than expected, according to Campbell.
There are also some signs of headwinds among Amex's client base, as small- to medium-sized enterprises have started to slow spending on digital advertising, Campbell said.
Other signs of an economic pullback include write offs, which have risen to 1.1% in the fourth quarter from less than 1% in the second and third quarter of 2022. These levels are still low, Squeri said. "Levels like [0.8%] and [0.6%] are not sustainable. It will tick up over time. That's just normal for the business," Squeri said.
Most spending categories have fully recovered from the pandemic, and there should be more stable growth in payment volumes in the year ahead, Campbell said. Travel and entertainment in the current quarter will grow faster compared to the first quarter 2022 due to the decline in activity that accompanied the coronavirus' omicron variant, Campbell said. Mastercard and Visa also reported first-quarter 2023 comparisons to 2022 would be more favorable than normal due to omicron impacts.
Amex additionally projected double-digit growth for 2024, and said it does not currently expect to deviate from its investment plans, which are focused more on long-term growth than quarterly performance.
Amex's modeling includes a downside potential of unemployment of up to 8% by the third quarter of 2023. If a recession were to be that deep it could impact Amex's projection of steady double-digit growth "for a few quarters," but the growth following the subsequent recovery would be higher.
"This doesn't change our long-term strategy of how we run the company," Campbell said.
