American Express (AXP) Beat Earnings on Post-Covid Spending Bounce

After extended periods of reduced economic stimulus, a return in consumer spending has bolstered the first-quarter earnings of American Express (NYSE: AXP), highlighting a cultural bounce in disposable income. American Express reaffirmed its annual revenue and earnings forecast after its Q1 profit topped estimates thanks to a resurgence in travel and entertainment spending. 

Since the economy reopened numerous months ago, spending has been on the rise as Americans make up for lost time traveling, shopping and other leisurely spending habits that were frozen with nationwide lockdowns. The rising trend has sparked bullish spending forecasts from executives at JP Morgan, Wells Fargo and Bank of America.

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Looking at the numbers, travel and entertainment spending rose 121% on a forex-adjusted basis compared with last year, hitting pre-pandemic levels for the first time in March. 

Overall spending grew 35% globally on a forex-adjusted basis, with volumes reaching a monthly record high in March off the back of a 56% jump in millennial and Gen-Z spending. Spending on goods and services, the biggest payment category on AmEx, rose 21%; again pointing to the pent-up demand from consumers. 

Despite the spending increase, shares dropped around 1.5% as the company announced a 34% surge in expenses on higher customer engagement and compensation costs.

Based on the bounce in income, the company was confident in expecting strong momentum to continue throughout the rest of 2022, estimating annual net revenue growth of between 18% and 20%, with EPS of $9.25 and $9.65.

With inflation on the rise, it's difficult to say how consumer spending trends will shape up in the coming months. We could see a slight down curve in spending habits post-Q2, when pandemic savings start to dwindle.