American Express: Strong Performer and Integrity Q1 2023 Results

American Express has reported record Q1 2023 revenue growth, driven by strong card member spending, particularly in the travel and entertainment sectors. The company's leadership, including CEO Stephen J. Squeri, has played a significant role in its success, with recognition for its commitment to integrity and community involvement. Despite two consecutive quarters of missing EPS consensus estimates, management has maintained guidance of at least $11 EPS for this year, and the company is well-positioned to benefit from increasing interest rates. As shareholders of Berkshire Hathaway, it is crucial to keep a close eye on American Express and the factors contributing to its strong performance and growth prospects.

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Introduction

American Express, a global financial services company, has recently reported a record first-quarter revenue of $14.3 billion, a 22% increase from the previous year. This impressive growth has been primarily driven by strong card member spending, particularly in the travel and entertainment sectors. Furthermore, the company's CEO, Stephen J. Squeri, was recently honored with the prestigious 2023 U.S. Transatlantic Business Award at the BritishAmerican Business Awards. As a significant holding in Berkshire Hathaway's portfolio, American Express' strong performance and management make it an essential asset for shareholders to keep an eye on ↗ ↗. This article will delve into the factors contributing to American Express' success, its management, and its future prospects.

American Express' Q1 2023 Revenue Growth

American Express' Q1 2023 revenue growth has been nothing short of remarkable. The company reported a record first-quarter revenue of $14.3 billion, a 22% increase from the previous year¹. This growth was primarily driven by strong card member spending, with a 16% increase on an FX-adjusted basis¹. Furthermore, travel and entertainment spending grew by 39% on an FX-adjusted basis, reflecting the pent-up demand for leisure activities as the global economy recovers from the pandemic¹.

During the quarter, American Express acquired 3.4 million new cards, with demand from millennial and Gen Z consumers accounting for over 60% of new consumer account acquisitions¹. This demonstrates the company's ability to attract a younger demographic, which is crucial for long-term growth. Additionally, American Express' credit performance remained best-in-class, and credit metrics remained strong in the current quarter¹. Consolidated provisions for credit losses were $1.1 billion, reflecting higher net write-offs and a net reserve build of $320 million¹. Overall, these factors contribute to American Express' strong Q1 2023 revenue growth and its bright outlook for the future.

American Express' Management

The leadership of American Express, particularly CEO Stephen J. Squeri, has played a significant role in the company's success. Squeri was recently honored with the 2023 U.S. Transatlantic Business Award at the BritishAmerican Business Awards². This recognition highlights the company's strong presence in the U.K., where it has been operating for over 140 years and employs nearly 6,000 colleagues across the country².

American Express has a long history of supporting small business owners through its year-round program, Shop Small, and celebrating Small Business Saturday annually². Additionally, the company is involved in community initiatives such as planting trees in Victoria Park and partnering with Brighton & Hove Albion F.C². These efforts demonstrate American Express' commitment to not only its customers and shareholders but also the communities in which it operates.

American Express' Ranking on 2023 Axios Harris Poll 100 Corporate Reputation Study

American Express' commitment to integrity and customer service has not gone unnoticed. The company ranks No. 17 on the 2023 Axios Harris Poll 100 Corporate Reputation Study, jumping 29 spots from last year's ranking³. The poll rates 100 companies on topics top of mind for consumers, and American Express' highest scores were in the categories of ethics, growth, vision, trajectory, and character³.

This ranking is a recognition of American Express' powerful backing promise to colleagues and customers and delivering the world's best customer experience with the highest level of integrity³. The Axios Harris Poll 100 is based on a survey of 16,310 people in a nationally representative sample conducted from March 13-28, 2023³. The ranking is based on the Harris Poll reputation quotient (RQ) framework, further solidifying American Express' strong reputation in the financial services industry.

American Express' Consecutive Quarters of Missing EPS Consensus Estimates

Despite its strong revenue growth, American Express has had two consecutive quarters of missing EPS consensus estimates⁴. However, management has maintained guidance of at least $11 EPS for this year, implying YoY EPS growth of at least 11.68%⁴. At recent revenue growth rates and net margins, management's goals look readily attainable⁴.

As both a credit card issuer and card payments network, American Express is uniquely positioned to better protect its margins⁴. This competitive advantage has contributed to the company's stock performing well since its initial public offering in Q2 1977⁴. American Express saw its shares climb well past and exceed the price return on the S&P500 after releasing its Q4 2022 results, even though it missed against EPS and revenue expectations for that period⁴.

American Express' Benefit from Increasing Interest Rates

American Express is well-positioned to benefit from increasing interest rates⁴. The company's financial statements show a material impact from rising rates, with total interest income rapidly increasing since Q1 2022, along with total interest expense⁴. This trend is expected to continue as the global economy recovers and interest rates rise further.

However, American Express has also seen rapidly rising labor costs and cost of goods sold, with the last quarter showing a significant increase in total operating expenses at 21.22% y/y⁴. Management has been explicit around slowing down operating expense growth throughout the rest of this year⁴. This focus on cost control will be crucial in maintaining profitability and achieving management's guidance for the year.

American Express' Full Year Guidance and Recent Results

Management has reaffirmed its full-year guidance of delivering between 15% and 17% revenue growth and earnings per share of between $11 and $11.40⁴. To achieve this, American Express will have to average at least $2.86 EPS per quarter for the next three quarters⁴. Based on the strong revenue growth in Q1 2023, with a YoY growth of 12.39% and a net margin of 13.7%⁴, management's goals for revenue growth and EPS growth look feasible.

The ongoing share buyback program will further increase EPS, making the stock more attractive to investors⁴. Additionally, the stock is trading cheaply compared to its year-to-date price performance⁴, presenting a potential buying opportunity for investors looking to capitalize on American Express' strong growth prospects. Note that American Express today trades at around $168, up around 4%, a surge that might not be great for people looking to buy the stock right now.

Conclusion for Shareholders of Berkshire Hathaway

In conclusion, American Express' strong revenue growth, management, and future prospects make it an essential holding in Berkshire Hathaway's portfolio. Despite consecutive quarters of missing EPS consensus estimates, management's guidance and recent results suggest that American Express is on track for strong growth and performance in the future. As shareholders of Berkshire Hathaway, it is crucial to keep a close eye on American Express and the factors contributing to its success.

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