American Express raising its annual revenue forecast, in large part due to increased travel spending, is a major sign a possible recession won't dent travel's recovery.
American Express Co raised its annual revenue forecast on Friday as consumers shrug off decades-high inflation and the threat of a recession to spend heavily on its cards, sending the company’s shares 5 percent higher in premarket trading.
Major U.S. banks including JPMorgan Chase & Co and Citigroup Inc have in recent weeks pointed to the resilience in consumer spending in the face of an uncertain economic outlook, a welcome sign for card companies.
AmEx said it now expects full-year revenue growth of between 23 percent and 25 percent, compared with 18 percent to 20 percent previously.
Spending on the company’s cards rose to record levels in the second quarter, with travel and entertainment segments surpassing pre-pandemic levels for the first time and spending by Millennial and Gen Z members jumping almost 50 percent.
That helped AmEx post a net income of $2.57 per share, beating the $2.41 expected by analysts, according to Refinitiv data.
“Even though the U.S. social-economic environment seems to be filled with recession fears, we’ve seen consumer spending continue to trend up over the last 18 months,” said Michael Ashley Schulman, chief investment officer at Running Point Capital Advisors.
“Since price inflation is faster than salary inflation, it might make sense for a family to purchase some big ticket durables now rather than wait till the items increase more relative to wages.”
The worsening economic picture, however, prompted AmEx to add $410 million in provisions for credit losses, a sharp contrast to the benefit of $606 million a year ago.
The New York-based company’s efforts to attract customers by spending on rewards and perks also drove up expenses by nearly a third to $10.4 billion.
(Reporting by Manya Saini and Mehnaz Yasmin in Bengaluru; Editing by Aditya Soni)
This article was written by Mehnaz Yasmin and Manya Saini from Reuters and was legally licensed through the Industry Dive Content Marketplace. Please direct all licensing questions to [email protected].