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    AXP
    Earnings call· Mar 2025(Q1 FY25)

    AMERICAN EXPRESS CO AXP

    Apr 17, 2025 Source

    Executive summary

    American Express Q1 FY25 — Strong Premium Customer Spending and Maintained Full-Year Guidance

    American Express delivered a strong Q1 FY25, driven by robust premium customer spending and continued card acquisition, particularly among younger demographics. The company maintained its full-year revenue and EPS guidance, reflecting confidence in its resilient business model despite increased macroeconomic uncertainty and a higher unemployment rate assumption. Management emphasized long-term investment and expense flexibility to navigate varying economic environments.

    Highlights

    5

    • Revenues of $17 billion, up 8% FX-adjusted (9% excluding leap year impact) year-over-year.

    • Net income of $2.6 billion or $3.64 per share.

    • Total card member spending grew 6% (7% excluding leap year impact), with Goods & Services growing faster than in 2024.

    • Added 3.4 million new cards, with millennial and Gen Z consumers making up over 60% of new consumer accounts globally.

    • Net card fees increased 20% FX-adjusted, marking the 27th consecutive quarter of double-digit growth.

    Concerns

    3

    • Sequential slowdown in airline billings growth in Q1 FY25.

    • Increased macroeconomic uncertainty, with full-year guidance incorporating a peak weighted average unemployment rate of 5.7%.

    • U.S. SME spending and wholesale merchants saw a modest acceleration in growth, possibly reflecting higher purchases in advance of potential price increases.

    Guidance & targets

    4
    CategoryTargetConfidence
    Full-year revenue growth
    8% to 10%
    high materiality
    High
    Full-year EPS
    $15 to $15.50
    high materiality
    High
    Peak weighted average unemployment rate assumption
    around 5.7%
    medium materiality
    Medium
    CET1 ratio target range
    10% to 11%
    medium materiality
    High

    Segment performance

    3
    SegmentRevenueYoYQoQMargin
    U.S. Consumer
    Solid growth across the affluent customer base, with Millennial and Gen Z customers driving the highest billed business growth. Delinquency rates for low-tenure customers are significantly lower than pre-pandemic levels.
    Millennial and Gen Z billed business growth: highestLow-tenure customer delinquency rate: 30% lower than 2019 levels
    		—8%——
    Commercial Services
    Consistent with 2024 trends, U.S. SME spending and wholesale merchants saw a modest acceleration in growth, potentially due to higher purchases in advance of price increases.
    		—3%——
    International Card Services
    Strong growth across all geographies, with each of the top 5 markets growing by double digits, reflecting strong demand and engagement with products.
    Top 5 markets growth: double digits
    		—14%——

    Operational metrics

    22
    Total revenues
    $17 billionup 8% FX-adjusted (9% excluding leap year impact) YoY
    Q1 FY25

    Delivered a strong start to the year.

    Net income
    $2.6 billion
    Q1 FY25

    Generated alongside strong revenue growth.

    EPS
    $3.64
    Q1 FY25

    Generated alongside strong revenue growth.

    Discount revenue growth
    5%YoY FX-adjusted
    Q1 FY25

    Largest revenue line, mostly driven by spend trends.

    VCE to revenue ratio
    43%
    Q1 FY25

    Came in at this level for the quarter.

    Rewards expense growth
    16%YoY
    Q1 FY25

    Growing over the benefit from URR model changes in Q1 last year; expected to grow more in line with historical trends for the remainder of the year.

    CET1 ratio
    10.7%
    Q1 FY25

    Within the 10% to 11% target range.

    ROE
    34%
    Q1 FY25

    Strong ROE providing strong capital flexibility.

    Dividend increase
    17%
    Q1 FY25

    Increased this quarter.

    Total billed business growth
    7.5%YoY ex-leap year, ex-FX
    Q1 FY25

    Around 1 percentage point higher than full year 2024.

    Goods & Services spending growth
    fastervs 2024
    Q1 FY25

    Sustained the uptick seen in Q4 last year.

    T&E spending growth
    in line with steady levelsvs most of last year
    Q1 FY25

    Reflecting continued strength in restaurant and lodging spending.

    Front of cabin tickets spending growth
    11%up
    Q1 FY25

    Remained strong despite overall airline deceleration.

    Millennial and Gen Z spend growth (U.S. consumer)
    15%up
    Q1 FY25

    Highest billed business growth within the segment.

    Millennial and Gen Z spend growth (International)
    22%up
    Q1 FY25

    Even larger contributor internationally.

    New cards acquired
    3.4 million
    Q1 FY25

    Continued to grow customer base.

    Millennial and Gen Z share of new consumer accounts
    over 60%
    Q1 FY25

    Globally acquired in Q1.

    Fee-paying products share of new accounts
    70%
    Q1 FY25

    Key driver of strong card fee growth.

    Average card fee per new account acquired
    40%increased by around
    past 3 years

    Reflecting strong demand for premium products and success in pricing.

    Millennial and Gen Z share of overall spend
    35%
    Q1 FY25

    Representing a significant portion of overall spend.

    Millennial and Gen Z average spend vs older generation
    20% less
    Q1 FY25

    They do spend a bit less and revolve a bit less.

    Travel bookings
    highest ever
    Q1 FY25

    Included a high in international bookings from travel-related services.

    Industry KPIs

    11
    MetricValueDetails
    Fee revenue20%%
    Delinquenciesbelow pre-pandemic levels
    Capital returns$1.3 billionUSD
    Credit quality mix30% lower%
    Net charge off ratebelow pre-pandemic levels
    Loans card receivables7%%
    Provision reserve rate$1.2 billionUSD
    Rewards engagement costs16%%
    New accounts card acquisitions3.4 millioncards
    Billed business purchase volume6%%
    Net interest margin yield on receivablesincreased

    Deals & partnerships

    1
    CenterAcquisition of an expense management solution to enhance offerings for small business and middle market customers.

    The acquisition closed yesterday (April 16, 2025). It is intended to be integrated into the Kabbage platform to create a unified ecosystem for SME customers, driving retention, acquisition, and potentially organic spending.

    Risks & headwinds

    3
    Increased macroeconomic uncertaintyFull year 2025

    Full year guidance incorporates a peak weighted average unemployment rate of 5.7%.

    Mitigation: Resilient and differentiated business model, global premium customer base, mix of spend/fee revenues (75%), expense leverage and flexibility, strategic investments.

    Potential pull-forward of spending in small business wholesaleQ1 FY25

    Minor impact, "a couple of points here".

    Mitigation: Proactive risk management, daily modification of models, close attention to small businesses as the situation evolves.

    Deceleration in airline billings growthQ1 FY25

    Not quantified, but noted as a deceleration.

    Mitigation: Continued strength in restaurant and lodging spending, overall T&E growth in line with prior year.

    What to watch in Q2 FY25

    5

    Overall spending levels

    Next quarter (Q2 FY25)
    CurrentConsistent with Q1 FY25 through first 1.5 weeks of April
    TargetContinued consistency or acceleration

    Why it matters

    Indicates consumer health and directly impacts revenue growth.

    through the first 1.5 weeks in April, overall spending levels have remained consistent with what we saw in the first quarter in both Goods & Services and T&E and across all customer segments.

    Q&A highlights

    8

    Has there been any pull-forward in spending, and how low can revenue go before expense cuts are made to protect EPS?

    Management has not observed significant pull-forward in consumer spending, with only minor instances in small business wholesale. They emphasized a commitment to long-term investment and will not cut strategic investments solely to hit short-term EPS targets, but believe EPS guidance can be met even at the lower end of revenue guidance.

    “I'm not going to pass up good opportunities to invest for the future just to hit a number.”

    asked by Sanjay Sakhrani · answered by Stephen Squeri

    2 min read5 chapters

    Detailed Narrative

    01

    Premium Customer Base and Spending Trends

    American Express's premium customer base continued healthy spending in Q1 FY25, with total card member spending up 6% (7% ex-leap year). Goods & Services spending grew faster than in 2024, while T&E growth was steady, despite a deceleration in airline billings. Millennial and Gen Z customers, comprising over 60% of new consumer accounts, drove the highest billed business growth in the affluent U.S. consumer segment, with their spend up 15% in the U.S. and 22% internationally.

    02

    Credit Performance and Portfolio Strength

    Credit performance remained very strong in Q1 FY25, with delinquency and write-off rates below pre-pandemic levels and flat year-over-year. The portfolio has strengthened, with delinquency rates for low-tenure U.S. consumer Card Members (24 months or less) about 30% lower than 2019 levels. This reflects careful acquisition and management, with the average FICO score for Millennial/Gen Z at acquisition being 750.

    03

    Revenue Mix and Card Fee Growth

    The business model is less reliant on lending revenues, with spend and fees accounting for 75% of total revenue. Net card fees grew 20% FX-adjusted, marking the 27th consecutive quarter of double-digit growth. This was driven by new card member acquisitions on fee-paying products (70% of new accounts) and success in attracting customers to higher-fee products, with the average card fee per new account acquired up approximately 40% over the past three years.

    04

    Expense Management and Flexibility

    The company maintains significant expense leverage and flexibility, particularly in marketing and operating expenses, allowing for adjustments in different economic environments. Rewards expense grew 16% year-over-year in Q1 FY25, impacted by lapping prior URR model changes. Management expects rewards growth to align more with historical trends for the remainder of the year.

    05

    Strategic Investments and Long-Term Focus

    Management reiterated its commitment to long-term growth, continuing strategic investments in technology infrastructure and product refreshes. The recent acquisition of Center, which closed yesterday, is part of building out capabilities for SME customers, aiming for a unified ecosystem with the Kabbage platform to drive retention, acquisition, and potentially organic spending.

    AI-generated summary of the company’s earnings call. Not investment advice.