American Express Q1 2021 Earnings Call Summary (NYSE: AXP)

Prepared Remarks Summary

Financial Results Q1:

• Revenues: $9.1Bn (-13% YoY).
• March revenues +7% YoY.
• Net income: $2.2Bn, including $1.05Bn reserve release.
• EPS: $2.74
• “I’m pleased to say that our overall core business performance is slightly better than our expectations, with credit performance continuing to be best-in-class, and we’re especially encouraged about the progress we’re making toward our aspiration of returning to the original EPS expectations we had for 2020 in 2022.” — Stephen Squeri, Chairman and CEO

Balance Sheet:

• CET1 ratio: 14.8%.
• Cash and investment balance: $61.5Bn.
• Repurchased 3.3MM shares in Q1.
• Expect to repurchase $900MM in shares in Q2.

2021 Outlook:

• Scenario 1: $6 of 2021 EPS, assuming no improvement in medical and economic environment, uncertainty persists and there is no further release of credit reserves.
• Scenario 2: $7.5 in 2021 EPS, assuming strong revenue recovery, continuation of strong credit performance, and an improvement in economic outlook leading to further credit reserve releases.

Q1 Performance Highlights:

• Net card fees: +10% YoY.
• Net Interest income: -22% YoY.
• Excluding travel and entertainment, spending on Amex cards in Q1 was up 11% vs. 2019.
• Steady upwards trend in monthly travel and entertainment spending. Pent-up demand for consumer travel is evident.
• New customers: card acquisitions are gaining momentum, up sequentially.
• Pay It Plan It: seeing strong adoption in the buy now pay later feature, with over $5bn in accounts receivables since launch.
• Key drivers of financial performance: volume and credit trends, plus marketing investments.

Macro Outlook:

• “But there are clear indicators that the economy is improving, particularly in the U.S., and I believe this will translate into continued steady improvements for American Express.” — Stephen Squeri, Chairman and CEO
• “We expect this trend to continue given the pent-up demand to travel that we see in our consumer base and the positive early signs of domestic travel recovery that we see in the U.S. as the vaccine rollout progresses.” — Jeffrey Campbell, CFO

Card Member Metrics:

• Card member attrition is lower than in previous years and customer satisfaction levels remain higher than pre-pandemic.
• Card member engagement with digital channels and capabilities is at an all-time high. 88% of U.S. card members pay digitally, and 87% use the website or app for self-service.
• The number of Amex offers redeemed in Q1 was up 5X YoY to 5.3MM.

China Progress:

• Started processing payments 8 months ago.
• Reached mobile wallet parity coverage.
• Added over 14MM merchants to the network.
• Key enabler of growth: adding the capability to process debit transactions globally.

Performance Volumes:

• Total network, billed businesses, and processed volumes down 8%, 9% and 1% respectively.
• Billed Business growth continued to recover steadily through Q1.
• Spending on goods and services (86% of volumes) exceeded expectations (+6% YoY, +11% vs. 2019).
• Strong online and card-not-present spend growth, up 23% YoY.
• Seeing faster pace of spending recovery in the U.S. versus other regions.
• Travel and Entertainment spending is still down significantly, but improved throughout Q1.
• Assumption that by Q4, T&E spending will have recovered to around 70% of 2019 levels.

Receivable and Loan Balances:

• Receivable balances down 4% QoQ, in line with spending volumes.
• Loan balances down 5% QoQ, more than spending volumes.
• Higher paydown rates due to liquidity and strenght amongst customers.

Credit and Provisions:

• Extremely strong credit performance.
• “The impact of the improvement in the set of macroeconomic assumptions on our reserve models, coupled with the sequential decline in loan and receivables balances and our strong credit performance, led us to release $1.05 billion of reserves. This reserve release and our extremely low write-offs drove a provision expense benefit of $675 million in the first quarter.” — Jeffrey Campbell, CFO
• Balances enrolled in financial relief program are still $2.1Bn higher than pre-pandemic levels.
• Ended Q1 with $4.8Bn in reserves, representing 6.4% of loan balance and 0.5% of card member receivable balance.

Marketing:

• Expect to spend $4.5Bn in marketing for the full year.
• New accounts acquired in premium fee-based products was up 35% QoQ, which acquisition volumnes on many products exceeding 2019 levels.

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