American Express Company (NYSE:AXP) stock had a volatile ride on Thursday as traders reacted to its first-quarter earnings report, which saw earnings missing the mark.
TickMill Group’s market analyst James Hart noted that the credit card company posted 1Q EPS (earnings per share) of $2.40, down against the $2.65 the market was looking for and down sharply against the $2.73 posted a year earlier. However, he said revenues were stronger at $14.3 billion against the $14 billion forecast, marking record highs for the company.
Delving into the breakdown of the earnings release, Harte noted that the company attributed record revenues to a heavy jump in card member spending with 16% total growth. This was driven by a huge 75% leap in net interest income and an 18% jump in non-interest income, he added.
“However, there were some aspects of the release which concerned investors, chief among these was the heavy increase in bad loan provisions,” Harte said.
American Express increased provision for credit losses to $1.06 billion, which the company said reflected higher net write-offs and a net reserve build of $320 million.
“This was in line with a growing trend of increased write-offs,” he added. “Total write-offs in Q1 hit $735 million, up from $287 million a year earlier. This is certainly an area that investors will be monitoring closely in coming quarters as US recession risks grow.”
After falling as much as 7% to a three-month low of $154.01 on Thursday, Harte said AmEx shares bounced back firmly over the session - closing 0.6% down at $163.28 - suggesting that shareholders were bolstered by increased spending growth.
Contact the author at stephen.gunnion@proactiveinvestors.com