Small businesses have faced a ton of challenges over the past few years, putting a dent in American Express' growth strategy. But the company projected a positive picture during its second-quarter earnings report.
"While there is an organic decline in small-business billings year over year, that decline is less," said Steve Squeri, Amex's CEO, during Friday's earnings call with analysts. "So we're seeing a slight improvement. And retention is still strong."
For the quarter ending June 30, Amex reported a profit of $3.02 billion, or $4.15 per share. That was about 39% higher than the prior year's $3 per share. Excusing the impact of its sale of fraud prevention division Accertify, Amex earned $3.49 per share, which beat analysts' estimates of $3.42 per share, according to LSEG. Revenue was $16.3 billion, up 9% from about $15 billion. That was below analysts' expectations for $16.59 billion.
Since Amex's consumer base has a large population of affluent consumers, it has remained relatively shielded from the impacts of inflation. But higher interest rates, lingering impacts from the pandemic and the recent spike in inflation have
"Given inflation, Amex's commercial business isn't even treading water," said Eric Grover, noting that the consumer business, which is growing at a mid-single digit rate, is "ho-hum."
"In the mature U.S. market, to grow faster, Amex needs to take share," Grover said. "Healthy international growth reminds that to buoy low-term growth, even the best U.S. payment systems need to strengthen their business abroad."
Squeri in the past has said
Amex has also taken steps to improve its ability to sell products to small businesses. It recently signed an agreement with
Amex additionally expressed confidence in its long-term health. For the full year 2024, Amex projects earnings of $13.30 to $13.80, up from the $12.65 to $13.15 range it had earlier projected.
In a research note, Jeffries said billed business for the most recent quarter was modestly weaker than expectations, with international showing the best results. "Given this and [the company's] strong performance going into results, shares could hit an air pocket," Jeffries said.
For the past several quarters,
"We feel good about where the U.S. consumer is. We'd like to see more organic growth," Squeri said. "A lot of our consumer spending is discretionary. When they pull back it will be on discretionary spending, but they will continue to pay their bills."
In a research note, William Blair said that as expected, Amex's growth moderated due to seasonal impacts, but the overall environment appears stable. In the second quarter, Amex's total billed business rose 6%, compared to 6% in the fourth quarter of 2023 and 7% in the first quarter of 2024.
Gen Z and millennials remain Amex's fastest-growing customer group, with 33% of total U.S. consumer services for Amex, and billed business growth of 13% in the United States, compared to 15% in the previous two quarters.
"At the Amex investor day, it was disclosed that millennial/Gen Z consumers have two times the lifetime value and two times higher spend growth in their first 10 years," William Blair analysts said. "We believe Gen Z/millennials should serve as a nice tailwind to overall growth in coming years."
