‘s first-quarter results showed investors that 2021 will very much be a transition year for the company.
Card companies have been hampered over the last year as consumers have been spending less on travel and entertainment during the pandemic lockdown. American Express (ticker: AXP) posted revenue of $9.1 billion in the first quarter, a 12% drop from the year-ago quarter and just shy of the $9.2 billion expected by analysts surveyed by FactSet. Profits exceeded expectations, however, with American Express earning $2.74 a share—better than both the $0.41 it earned in the first three months of 2020 and the $1.75 expected by analysts.
Results were helped by a $1.1 billion release of reserves set aside last year in anticipation of a wave of soured loans as the pandemic shuttered large parts of the economy. With the economy in recovery mode, many of those worst-case scenarios did not pan out. Despite the less dour economic forecast, investors were fixated on the revenue miss and declines in travel and entertainment spending.
American Express shares were down as much as 4% in premarket trading. The stock has fared well this year, with shares up 21% year to date, better than peers
(MA), which are up 4% and 7.4% over the same period, respectively.
“I am pleased with our results in the first quarter, where we saw continued improvements in our core business along with best-in-class credit performance, and I’m especially encouraged by the progress we’re making to rebuild our growth momentum going forward,” said
Stephen J. Squeri,
chairman and chief executive officer. “We view 2021 as a transition year, where we are focused on making investments to rebuild growth momentum in our core business.”
Weak travel and entertainment spending over the last year has dogged the company as live events were largely canceled and businesses pulled back on corporate travel. American Express saw a 40% year-over-year decline in travel and entertainment spending in its consumer division while its commercial division saw a 64% drop.
Management said that it is increasingly confident that consumer travel and entertainment will rebound, given an uptick in spending it’s seen in the first few weeks of the current quarter. Excluding travel and entertainment, American Express said it saw a 6% increase in spending compared to last year.
While American Express views 2021 as a transition year, the company projects it will be back to growth beyond its pre-pandemic performance next year.
Write to Carleton English at [email protected]