By the looks of American Express' (AXP +1.79%) fourth-quarter results, you would never know that many people are speculating that the U.S. is on the brink of a recession. The company's revenue, net of interest expense, soared 17% year over year in Q4, and 25% for the full year of 2022. Even more, American Express said it expects double-digit revenue growth in 2023. The integrated payments and credit card company is firing on all cylinders as it benefits from a resilient customer base.
But it's not just the company's financial performance that seems to be skipping over recession worries. Management doesn't seem concerned either. "We aren't seeing recessionary signals," said American Express CEO Stephen Squeri to Yahoo! Finance anchor and editor-at-large Brian Sozzi following the company's earnings release.
Here's a look at the company's impressive growth and management's optimistic expectations in the middle of a challenging macroeconomic environment.
NYSE: AXP
Key Data Points
Strong growth
For its fourth quarter, American Express saw total network volume increase 12% year over year to about $413 billion. Net income, however, declined for both the fourth quarter and the full year. However, this was largely due to a change in provisions for credit losses. In 2021, American Express benefited from a reserve release of $2.5 billion as the negative impact on the economy the company had provisioned for as a result of the COVID-19 pandemic failed to materialize. This reserve release of $2.5 billion in 2021 compares to a reserve build of $617 million in 2022. Notably, though, this reserve build shouldn't worry investors. "Credit metrics remained strong throughout the year and below pre-pandemic levels," American Express said in the company's fourth-quarter update.
The company, which is focused largely on more resilient customers than other credit card and payments companies, said its "premium customer base," "exceptional risk management capabilities," and "membership model" are all key drivers for the company's recent momentum.
American Express added a record 12.5 million new card accounts during 2022. Even more, the company benefited from high engagement and retention from its customer base.
A robust dividend
American Express also used its fourth-quarter update to announce a dividend increase. The company is raising its dividend by 15% year over year. The new quarterly dividend gives shareholders a dividend yield of 1.4%.
Looking ahead
Looking ahead to the full year of 2023, American Express guided for revenue to increase 15% to 17% and earnings per share to rise between 12% and 16% year over year.
Overall, management's commentary in the company's fourth-quarter earnings call suggests it is confident in both the near- and long-term. Yet management also acknowledges there is uncertainty about the current macroeconomic environment. Squeri explained that the company remains "committed to running the company with a focus on achieving our aspirations of sustainably delivering revenue growth in excess of 10% and mid-teens [earnings per share] growth in 2024 and beyond, as we get to a more steady-state macro environment."
While a recession could always rear its head, American Express clearly isn't seeing any signs of it yet. And if it does surface, the company's premium customer base should be able to manage it adeptly. While there are certainly risks to owning any stock, American Express' fourth-quarter results made a good bull case for this one.
