American Express Company (AXP) Earnings Call Transcript & Summary

Welcome to the American Express Q2 2026 Earnings Call. [Operator Instructions] As a reminder, today's call is being recorded. I will now turn the call over to Kartik Ramachandran, Head of Investor Relations. Please go ahead.

Thank you, and thank you all for joining today's call. Today's discussion contains forward-looking statements about the company's future business and financial performance. These are based on management's current expectations and are subject to risks and uncertainties. Factors that could cause actual results to differ materially from these statements are included in today's presentation slides and in our reports on file with the SEC. Today's discussion also contains non-GAAP financial measures. Comparable GAAP financial measures are included in this quarter's earnings materials as well as the prior period earnings materials discussed today. All of these are posted on our website at ir.americanexpress.com. We will begin today with Steve Squeri, Chairman and CEO; followed by Christophe Le Caillec, Chief Financial Officer. After their remarks, we'll move to Q&A. With that, I'll turn it over to Steve.

Thank you, Kartik. Good morning, and thanks for joining us today. We delivered another excellent quarter with 10% revenue growth and EPS of $4.53. Our results continue the momentum we've seen over the last few quarters and reinforce the confidence that we have in our strategy for sustaining long-term growth. Based on our better-than-expected performance year-to-date, we are raising our full year revenue growth guidance to 10%, and we plan to reinvest this outperformance in growth initiatives across our business. We continue to expect full year EPS of $17.30 to $17.90. I'm sure the question on your minds right now is if you're outperforming your expectations, and you are raising your revenue guidance, why aren't you also raising EPS guidance? I'll answer it. We have a choice. We can either drop the overperformance to the bottom line and buy back more shares or we can invest to grow the business further through the wide range of attractive growth opportunities we have across our business, both in the U.S. and international. We've chosen the latter. Because in the long run, it is the one that creates the most value for our shareholders as demonstrated by our high ROE. That is what we have consistently done over the past several years. As we're at the halfway point of the year, let me take a step back and walk you through how we approach this year and how our results reflect the strength of our business model and the strategic decisions we've made to position the company for long-term success. Over a year ago, consistent with our strategic focus on strengthening our leadership in the premium space, we made the decision to make a significant investment in enhancing our flagship Platinum products in the U.S. While I've said this before, it's worth repeating. When we invest in a product refresh, we expect to realize the full benefits of year or 2 after launch. First, we anticipate increased customer engagement as well as strong demand and spend growth. Then as we lap the investments and as the new fees kick in over time, we expect fee revenues to increase and VCE expense growth to moderate. And by focusing on bringing in high credit quality premium customers, we expect to see consistently strong credit performance, which supports strong earnings growth. With that in mind, as we enter 2026, our plan was as follows: make the upfront investments in the Platinum value propositions, which we anticipated would continue to drive the high pace of revenue growth. maintain strong credit risk management and drive operating leverage across our marketing and operating expenses. The combination of high revenue growth, strong credit performance and disciplined expense management were key elements of our plan for driving mid-teens EPS growth for the fourth consecutive year. Six months into the year, we're seeing stronger momentum than we expected. The investments we made in our value propositions have driven accelerated spend and revenue growth, and our Platinum portfolio is now the fastest growing in our U.S. consumer business. Our credit performance is also better than we expected. Retention rates remain very high, and we continue to attract a large number of high creditworthy customers with 65% of new consumer accounts coming from Millennials and Gen-Zs. Importantly, we've continued to deliver strong revenue and earnings growth while at the same time being able to invest more in customer acquisition and technology. Over the course of the year as we capitalize on the growth opportunities that position the company for long-term success. In looking to the second half of the year, we have great momentum. We expect card fee growth to accelerate credit to continue to be very strong and variable card member engagement growth to decelerate as we lap the Platinum refresh of last year. As the Platinum refresh is shown, the key to our growth momentum over the past several years has been our focus on investing in innovating our membership-based value propositions to attract and engage premium customers across generations and geographies. Creating compelling premium value proposition that are competitively differentiated is not just about reward points. It's about enabling spending power, providing access to highly desirable travel, dining, entertainment and exclusive experiences, forging relationships with world-class partners who provide additional value, and having talented dedicated colleagues who back our customers and merchant partners when issues arise. In essence, a great premium value proposition is not just a product. It's a multifaceted relationship between the brand and the customer. This is what our membership model delivers, and it is very difficult to replicate on a global scale. To build deep, enduring relationships with our premium customers, we've leaned into adding benefits they value and where they spend like travel, which is why we continue to expand our lounge and luxury hotel networks. And dining, which is why we acquired Resy, Tock and our proposed acquisition of TheFork a leading online restaurant booking platform, which Resywould add 50,000 restaurants to our dining network across 11 European countries. It's also why we've added new sports sponsorships like the NFL and Fanatics and provide access to a wide variety of exclusive membership of the experiences around the world. Deepening the engagement with our premium customers is also why we continue to introduce new digital payment capabilities such as the recent announcement that card members can redeem membership reward points directly within Apple Pay, giving them greater flexibility to use their points on everyday purchases. A core element in designing our value propositions is working with world-class partners who value the opportunity to reach our high-spending premium card members. We're expanding partnerships with many of the premier companies in the world across a range of industries that further enrich the value of membership and drive customer engagement. In fact, just a few days ago, we announced a new global partnership with All Accor, the booking and loyalty platform for Accor's portfolio of 45 worldwide hotel brands, which include Raffles, Fairmont and Sofitel. Importantly, our approach to creating value propositions is not a one-size-fits-all exercise. It is tailored to meet the needs and preferences of different customers and in different locations. For example, the Platinum Card is designed for customers who value premium travel and lifestyle perks like airport lounge access, luxury hotel benefits and one-of-a-kind experiences. The Gold Card on the other hand, is designed for those who do some traveling but prioritize their spending on dining, grocery and other everyday benefits. Likewise, our co-brand cards each have their own value propositions with benefits that appeal to their specific customer bases. And our value propositions for small- and medium-sized business customers are designed to fit the different payment and financial management needs of their businesses. For example, in the second quarter, we introduced the $300 Chat GPT business annual statement credit for our U.S. business Platinum and Gold Card members, and we launched a pilot of our new expense management platform to initial group of middle market customers. We've been executing the same strategy internationally, creating premium value propositions with benefits, partnerships and experiences that are tailored to the customer needs and local dynamics in each geography at price points that are typically higher than in the U.S. Since 2003, we've refreshed our Platinum Card in approximately 80% of the countries where these cards are issued, which has helped to drive 20% FX adjusted growth in international Platinum card spending this year. Furthermore, around 70% of new consumer Platinum Card accounts outside the U.S. are coming from Millennials and Gen-Zs. This approach to innovating our premium value propositions has served us well, and we plan to continue implementing this successful playbook across our business. As a result, we have built a business that compounds earnings more durably and at a faster pace than in the past. When compared to our historical performance, we now have more momentum in both the top and bottom lines. a more premium fee-paying customer base with strong loyalty, less credit risk, including what it's under stress and more younger customers who represent greater lifetime value. In sum, we are competing from a position of strength. We are tracking ahead of the expectations we set at the beginning of the year, generating momentum that enables us to invest more in 2026 and than we initially planned and opportunities that drive long-term growth. In fact, our proposed acquisition of TheFork is one of those great opportunities. We did not have it originally in our plan at the beginning of the year and will require investment in the second half of the year. As our strong performance has shown, we are winning with the next generation of premium customers and we have significant growth opportunities across our businesses and around the world. Taken together, this gives us confidence in our long runway for sustainable growth and our ability to continue delivering attractive returns for our shareholders. I'll now turn it over to Christophe for details on the quarter.

Thanks, Steve, and good morning, everyone. We had another strong quarter with revenue growth of 10% EPS up 11% year-over-year. Pretax income was up 15%, while net income was up 8% due to prior year tax discretes. The strength of our premium customer base combined with the success of our product strategy has driven accelerated momentum in the first half of the year. Spend growth stepped up to the highest level we've seen in 3 years, up 9% FX adjusted, in both Q1 and Q2, and balanced growth continued to keep pace with spending. Demand for our premium products remain strong with over 70% of new accounts acquired on fee-based products this year. And card fees have now grown at a double-digit rate with 32 consecutive quarters. Importantly, our focus on premium products continues to drive improvements in credit performance. The strengthening we have seen in our credit performance is a deliberate outcome of our strategy to invest in value propositions that attract customers with high credit quality. As a result of that strategy, both delinquency and write-off rates remain below 2019 levels and delinquency rates have been between 1.2% and 1.3% for over 3 years. The combination of top line momentum, excellent credit and disciplined expense management have together supported 11% revenue growth and 14% EPS growth through the first half of the year even as we have invested in our U.S. Platinum value propositions. These results demonstrate the strength of our model and give us confidence in our ability to drive sustainable growth in line with our long-term aspiration. Turning to Billed Business trends for the quarter on Slide 4. Overall spend was up 9.4% FX adjusted, almost 1 point higher than Q1 and Growth was broad-based across categories with goods and services spending up 9% and T&E up 10%. Retail spending continued to be very strong, up 13% FX adjusted in the quarter. Restaurant spending, our largest T&E category, was up 10%. And line spending picked up further from the strong growth we saw in Q1 also up 10% year-over-year. Our customers are showing strong demand for travel with global MX travel bookings up 22% year-over-year in the quarter. U.S. consumer spending was up 11%, the highest level of growth since Q1 2018, excluding periods impacted by the pandemic. And we continue to see good engagement from our younger customers. Millennial and Gen-Z, which make up the larger share of U.S. consumer spending remained our fastest-growing cohorts this quarter. Commercial spending picked up to 5% with both U.S. SME and large global customers growing at the same pace. We are still in the early stages of our commercial product road map but we are encouraged by recent trends. At the same time, we do expect to see impacts from the sale of the small business co-brand portfolios in the balance of the year, which I will get to a bit later when I discuss our outlook. International also delivered another strong quarter. We spent up 12% FX adjusted. Growth remains broad-based across consumer and business customers and across geographies with 4 of our tough 5 countries growing at a double-digit rate. Turning to new card acquisitions. We acquired 3 million new cards in the quarter with continued momentum in acquiring younger customers and attracting new customers onto our fee-paying products. Looking at balance growth and credit. Total balance increased 9% year-over-year FX adjusted, in line with Billed Business. We have now lapped the roughly 1 percentage point impact on balance growth from when the small business co-brand portfolios were classified as held for sale over a year ago. As a reminder, although these 2 portfolios were classified as held for sale, we continue to earn economics until the transfer of the portfolios to the new issuers. One portfolio transfer happened in April this year and the second one is expected in Q3. Credit performance continues to be very strong. The Q2 write-off rate was flat versus last quarter while the delinquency rate declined. Provision expense of $1.1 billion included a reserve release of $191 million, mostly reflecting further strengthening of portfolio credit performance. The strength of our model also holds in a stressed environment as demonstrated by the Fed's recently released CCAR results, which show that under a severely adverse scenario, we have the lowest projected credit card loss rate across all banks and a pretax ROE of 3.8% over 9 quarters. Turning to revenue on Slide 13. The Revenue was up 10%, marking our fourth consecutive quarter of double-digit revenue growth. Net card fees reached record levels, and once again our fastest-growing line, up 15.4%. We continue to see good momentum in attracting customers on to our premium products with 75% of new accounts acquired on fee-paying products in the quarter, the highest level we have seen since we increased our focus on premium products. Net interest income was up 11% this quarter. We saw around a 1 percentage point impact to year-over-year NII growth from the sale of one of the small business co-brand portfolios. We continue to grow balances largely in line with spending while driving higher NII growth by expanding the margin earned on balances. We are also seeing demand for our deposit products with balances from our U.S. consumer and small business banking deposit products, up 9% year-over-year. The majority of deposits come from our card members, deepening their engagement with our membership model. And with around 10% of our U.S. card members currently holding a deposit account with us, we see a long runway for growth. Turning to expenses on Slide 18. Marketing and OpEx each grew 6% in the quarter. And the VCE to revenue ratio was 44.6%. The step-up versus the first half of last year reflects the investment we made in the value propositions of our U.S. Platinum cards when we refreshed these products in September last year. As we discussed at the start of the year, the VCE to revenue ratio is linked to the level of car member spending. Through the first half of the year, we have seen stronger spend than we expected coming into the year, including in categories like airlines, where customers earn and use rewards. These factors are contributing to a slightly higher VCE ratio than we originally expected. Moving on to capital. We returned $2.9 billion of capital to our shareholders, including $0.6 billion of dividends and $2.2 billion of share repurchases. Our business continues to generate very strong returns with an ROE of 36% this quarter. Our strong ROE enables us to return high levels of earnings to our shareholders over 75% over the past 3 years. Turning to our 2026 outlook. Let me spend a few minutes on how we're thinking about the balance of year. Starting with billings and revenue. We expect to see impacts from the sale of the 2 small business core brand portfolios. The transfer of the portfolios are staggered across Q2 and Q3, building to the food impact by Q4. Starting in Q4, a we expect a quarterly impact of around 1 percentage point to spend growth at around 2.5 percentage point impact to net interest income until we lap the portfolio sales. Put together, the impact of revenue to total revenue is about 1 percentage point. I would note that the portfolio sales will have a negligible impact to pretax income, and these impacts were incorporated in the guidance we provided for the year. On card fees, we expect growth to accelerate in Q3 and to exit the year in the high teens, and we continue to expect credit metrics to be generally stable throughout the year. Turning to expenses. We expect marketing to be up by around 10% year-over-year in the second half of the year, driven by increased investments in customer acquisition. We continue to expect operating expenses to grow in the mid-single digits for the full year. including the additional investment in technology we previously discussed. On the VCE ratio, given the higher level of spendings we have seen this year, we now expect the ratio to be between 44% and 45% for the full year. We will lap the impacts of the Platinum refresh starting in Q4, resulting in lower growth in VCE expenses. We feel really good about our momentum and our results halfway through the year, having delivered 11% revenue growth and 14% EPS growth as well as the opportunities for continued growth ahead. Given the momentum in the business, we are raising our revenue guidance and now expect full year revenue growth of 10%. And as we increase investments in new customer acquisition and technology development, we are maintaining our full year EPS guidance of $17.30 to $17.90. The guidance does not include the potential impact from the sale of our equity interest in Global Business Travel Group that we previously announced. We expect the transaction to close in the second half of the year and will provide more detail there. With that, I'll turn the call back over to Kartik, and we'll take your questions.

Thank you, Christophe. We will now start the Q&A session. We ask that you please limit yourself to just one question. Thank you for your cooperation. Operator?

[Operator Instructions] Our first question today is coming from Sanjay Sakhrani of KBW.

So the 11-plus percent growth in USCS is truly impressive. I'm curious if there's a way to parse apart how much is coming as a result of the strong account acquisitions you've seen of late versus like your core mature customers spending more on the card. I'm just trying to think about the sustainability of that outperformance? And then also, it's really impressive. This is happening all the geopolitical impacts and obviously, the contagion to the economy. I'm just curious if you're seeing anything on that front, whether it's in USCS or in other areas.

Sanjay. So on USCS billing, so you're absolutely correct. So it's up 11.4%. And it's -- we went back in time to see when was the last time we saw such a growth. And if you strip out the discontinuity of COVID, you have to go back to Q1 2018. So it's truly an impressive performance. One of the biggest contributor to the acceleration is the platinum refresh. It is, by far, the biggest product we have. It has the fastest growth rate. There's truly a lot of momentum. We see that momentum coming from new card member acquisition as well as the tenured card members that are increasing their spend as well as either people who have either another card in their wallet and grading to platinum card, right? And so platinum is definitely pulling a lot here in the acceleration. If you go back to Q1, we quantified that acceleration, and I talked about it was in a Q1 number, but we talked about a 600 basis point acceleration across the entire platinum portfolio in U.S. consumer. So it's truly coming from a lot of tenured card members that are just consolidating their spend because they enjoy the new value proposition.

Yes, Sanjay, let me just add a couple of points. I think with the refresh, engagement has been really accelerated, and that's driving a lot of the spend. And when you start to dig into the numbers, we saw a 22% increase in travel bookings. And that -- I mean, we put that into the value proposition. You look at restaurant spend was up 10%. But when you look at Resy restaurant spend, it's double that. So again, I think what we've hit on really, I think, well here with this -- especially with the Platinum refresh, is we're stepping up engagement. So I think as Christophe said, it's a combination of new acquisition, but it's also the engagement that we're getting with the existing card members, and it is very impressive to be at 11% for us at this stage of the game.

And to the second part of your question about the geopolitical events out there. So when you look at a granular data, you do see, right? You do see gas spend increasing significantly. Now it's around 2% of the total billings. So it's not meaningful in terms of impact to the overall numbers. You do see as well, either travel to the Middle East, go through the Middle East, either like an impact, as you would expect. But travel globally is up 10%. And this is the highest number. Airline is up 10%, and this is the highest number we've seen in the last 6 quarters, right? So there is like some impacts, but there is no evidence of a general slowdown and people are offsetting these transactions with all the transactions in other categories. So it's not really visible at a macro level.

The next question is coming from Ryan Nash of Goldman Sachs.

So Steve, you noted the decision to reinvest the upside in revenue growth. Maybe just talk a little bit more about the areas that you're investing in. I know you referenced customer acquisition and technology and maybe just talk a little bit about what you think this will do in terms of your ability to sustain these types of top line growth levels into 2027?

Okay. Thanks for the question. Look, I think we've gotten to a point where the company has got quite large and to continue the revenue growth, it requires us to continue to invest. And those investments come across a wide range. The one thing that I did call out was, obviously, we've acquired -- we're going to acquire TheFork, all things working out the way we hope they work out. And look, there will be deal cost integration costs, things like that. We're investing in technology. And when you think about our company, we've got international business, U.S. business, corporate card business, small business, we operate in so many different countries. We have a merchant acquiring business and a network business. There is no shortage of technology investments or enhancements, or refreshes that need to occur. And so across a wide range of technology platforms, we're able to pull some of those investments into the second half of the year. And so to be able to get to things quicker, is a huge advantage for us because we're going to have to make these investments over time. And why not make those investments sooner rather than later to update the platforms and so forth. The other thing that is still out there is there are still card acquisition opportunities. And to my point about sustaining the growth, you need to continue to invest in acquiring high revenue-generating cardholders and high spending cardholders to continue the really good revenue growth that we've seen over the last few years. And so that's where you can think about these investments occurring there. It's in technology a little bit in TheFork and also in card acquisition. And then you've seen, we've announced a number of things that we're participating in from an agentic commerce perspective. And that requires investment as well. And those things weren't on the docket at the beginning of the year. So it's not a stagnant business, and it's not a business that you don't need to put gas in a tank. And so that's what we're doing. And I think it's a strategy we've employed for a number of years. I think it's really served us well. I mean we've been consistently growing the last 4 years, double-digit revenue growth, mid-teens EPS growth. And we don't look at just a year. We look at it the medium to long term, and we think this is the best strategy for us and for our shareholders.

The next question is coming from Don Fandetti of Wells Fargo.

Steve, it sounds like you're feeling a little bit better about SME, launched a pilot on the expense management software. I guess I'm trying to understand, is this more of a discussion around like the pace of billed business growth? Or could we see some type of middle market customers moving away to the fintechs where there could be some lumpiness? And then my follow-up is, just to touch on the advantage of the closed loop around Agentic commerce.

Okay. Thanks for the question, Don. Look, I think we announced a very aggressive commercial card road map earlier in the year. I think you're seeing a little bit of a bounce back. I mean we were at 5% from an SME perspective, 5% from a large and global perspective. And look, I mean, from a middle market space, ramp in Brexit been out there and center, which is our expense management system, which we just launched. I think this will us not only retain business, but actually win new business as well. It's middle market where we have seen the softness. Small business has been very strong and large in global and corporate been moving along, I believe, very nicely. So my perspective is we've seen an uptick in SME billings over the last 2 quarters. And I think the road map that we have and this financial -- the launch of the middle market expense management software will certainly help us. As far as Agentic, I think the closed loop, we talked about the closed loop for many, many years. We've talked about it from a physical perspective. And then we talked about it from an e-commerce perspective, and I think we're even more advantaged from an e-commerce perspective, both from a fraud and data. But when you think about Agentic Commerce and you think about just how potentially brought it is with not only fraud, but also with hallucinations that can occur. I think by understanding what a card member truly wants to have and sort of intent and having that data, being able to go out and then match that purchase data will enable us to provide and back our customers a lot better, which is why we announced months ago now the Agentic insurance product, where I think we're going to have a huge advantage from a trust service and security perspective over our competitors in the marketplace because we have the data both sides. We know what the customer want. We know what the customer wanted to do, and we'll also know what the merchant delivered. And I think people -- look, we're in the -- people say, in the early innings. We're sort of in the pre-season. We didn't get to the early innings of the regular season yet. And I think people are a little bit nervous. They're nervous about interacting in this space. And what we hope is because of our knowledge of both sides of the equation that as this begins to take off, they will choose us because of our ability and our historical track record of backing our customers. And so I think that's our advantage. And I think we've talked about the advantage in a physical world. We've seen it play out there. We've seen it play out in e-commerce. I think it's going to play out even more over time. But as I said, really, we're not even in the early innings, we're in pre-season here.

The next question is coming from Craig Maurer of FT Partners.

Wanted to ask about the adjustment in the URR and how material the benefit was in the quarter? And that helps us gauge the rest of the year and when you grow over it next year. And additionally, you talked about higher client incentives and business development expense. Can you talk about those trends considering the big wins you've had recently with the NFL, fanatics and so on?

Okay. I'll take the URR question. So we the URR for those who are not familiar, is part of the key element of our membership rewards program, we evaluate and quantify the ultimate rate of redemption. From an accounting standpoint, we book -- we expense the cost of those rewards when they are earned and we make an assumption about how many of those points ultimately are going to be redeem. So it's a fairly complex calculation. So on a regular basis, we update the models. We try to make it better. We improve the data that feeds the model to be more accurate. And as you can imagine, there's a lot of reviews and a lot of work that goes into any revision of that assumption. And so when we did that, we came up with a slightly lower ultimate rate of redemption, but it really hasn't changed it much. I think we report externally the ultimate rate of redemption is like 96% rate, and it really hasn't changed that much. So it has a small benefit in the quarter in terms of the MR cost. But at the full year level, it's just going to be like a -- it's going to be de minimis. So it's not -- it's more hygiene and making sure that we have the right accounting process more than anything else.

Yes. Look, thanks for the question, Craig. When we think about the NFL Fanatics and look the other sponsorships that we have the NBA, Formula 1, the USGA, Wimbledon and U.S. Open tennis. Sponsorships are really all about access for our card members, experiences, special things that we can do, which is also why we have our event stadium benefits that we have as well with different locations around the world. And so what we're trying to do there is package up a group of experiences that are that our card members really like and that you get from music and direct to artist things that we do as well. Specifically with the NFL, I think with the NFL, NBA, Formula 1, it gives us on a global basis, access for our card members to events and to venues that they want to go to. And Fanatics sort of ties it all together for us, not only from an experience perspective when they have Fanatics Fest but also for the various things that we will do with Fanatics at the NFL Draft and be it All Star Games, Super Bowl, et cetera. But also from a merger perspective and a collectibles perspective and trading cards and things like that. So I think you tie that whole experience together. From a cost perspective, both fanatics and -- when you think about our entire marketing budget is very, very tiny. And they are in the plan. They're in the run rate. So when we talk about increased investments, that's not some of the things that we're investing in. But we really like the assets that we have and we like how they work together, and how our card members really enjoy them.

The next question is coming from Rick Shane of JPMorgan.

Look, you guys have talked a lot about customer acquisition. Can we talk a little bit about attrition, both quantitatively and qualitatively, can we sort of think through what the 1- to 2-year retention rates are on new customers versus what you've seen historically? And also, to the extent you get feedback when customers don't renew the card. What are the reasons that a customer might walk away?

The executive summary to you -- the answer to your question is we're not seeing anything on attrition. And I will send you back to a slide that we showed in Q1, that was actually pretty detailed on the Platinum card, where we raised the fee by $200. And by the end of Q1, we had repriced, if you want, about 1/4 of the U.S. Platinum portfolio. And the retention rate were not only through the roof, they were flat year-over-year. And last year, there was like no price increase. So we're not seeing anything on the attrition level, they remain very high. In terms of why the people are [indiscernible] or downgrading. Sometimes people say, I'm not -- I just retired. I just don't need that kind of benefit anymore. And I'm just going to downgrade vice versa, as a matter of fact, I was saying earlier on that we've seen on the Platinum card as a result of the introduction of the new value proposition, a lot of card members upgrading. So either -- but in general, attrition levels remain very consistent with what we've seen in the past. And we've been, as you know, refreshing a lot of our new products and we've been repricing a lot of the new card members. And the end result is that attrition level have remained very, very constant and very low for the past few years.

The next question is coming from Mark DeVries of Deutsche Bank.