American Express Co ($AXP) Q3 2025 Earnings Call

Ladies and gentlemen, thank you for standing by. Welcome to the American Express Q3 2025 earnings call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. If you wish to ask a question, please press star then one on your touchtone phone. You will hear a tone indicating you have been placed in queue. You may remove yourself from the queue at any time by pressing star then two. If you're using a speakerphone, please pick up the handset before pressing the numbers. Should you require assistance during the call, please press star then zero. As a reminder, today's call is being recorded. I would now like to turn the conference over to our host, head of investor relations, Mr. Cartik Ramachand. Please go ahead.

Thank you, Daryl, and thank you all for joining today's call. As a reminder before we begin, 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. The discussion today also contains non-GAAP financial measures. The comparable GAAP financial measures are included in this quarter's earnings materials as well as the earnings materials for the prior periods we discuss. All of these are posted on our website at ir.americanexpress.com. We'll begin today with Steve Squeri, chairman and CEO, who will start with some remarks about the company's progress and results and then Christophe Le Caillec, chief financial officer, will provide a more detailed review of our financial performance. After that, we'll move to a Q&A session on the results with both Steve and Christophe. With that, let me turn it over to Steve.

Thanks, Steve, and good morning, everyone. Let me start with a few highlights for the quarter. Our business model is performing really well. Revenue growth accelerated to 11% this quarter with broad-based growth across revenue lines. Annual card fees are now approaching $10 billion annually and have grown at double digits for 29 consecutive quarters. Credit performance remains excellent with both US consumer and small business delinquency rates still below 2019 levels. And we've driven leverage from expenses and provision even as we have invested in our premium value propositions, marketing and technology. As a result, we continue to deliver very strong returns. EPS growth was 19% this quarter with an ROE of 36%. Turning to billings business trends for the quarter, total spend was up 8.5% FX adjusted, about 2 percentage points higher than Q2. The step up in growth was driven by strong retail spending up 12% as well as a rebound in T&E. Airlines spending picked up this quarter and restaurant, our largest T&E category, continued to be very strong, up 9%. Premium T&E bookings saw good momentum with spending on front of cabin airline tickets up 14%. The momentum we've seen from younger customers also continued. Millennials and Gen Z now account for 36% of total spend, making up the same share as Gen X. International had another strong quarter. Spend was up 13% FX adjusted. Momentum remains broad-based across markets with three of our five top countries growing by 18% or more this quarter. In addition to the strong early performance we are seeing in the US following the refresh, spend on platinum cards issued outside the US is up 24% this quarter, consistent with what we have seen over the last two years. Overall spend growth continues to be driven by transaction growth, up 10% in Q3, a good indicator of engagement from our customer base. I will note that we see strong engagement from millennial and Gen Z card members with the average number of transactions per US customer about 25% higher than older cohorts. We acquired 3.2 million new cards in the quarter. And even more important than the overall number of cards, demand for our premium products remain very strong with over 70% of new accounts acquired on fee-paying products. Turning to balance growth and credit, loan and card member receivables were up 7% year-over-year, broadly in line with billings business. There was about a 1 percentage point impact on balance growth from our held-for-sale portfolios again this quarter. Credit performance remains very strong and stable. Q3 delinquency and write-off rates were low with delinquency rates flat to last quarter while write-off rates declined. This performance is supported by our focus on premium products which tend to attract high-income, highly creditworthy customers. We're seeing the outcome of this strategy in the latest platinum refresh where the credit profiles of consumer applicants following the refresh are even better than what we were seeing before with average FICO score up 15 points contributing to 2x the number of acquisitions. Overall provision expense of $1.3 billion this quarter included a reserve build of $125 million reflecting balance growth. Turning to revenue on slide 14. Revenue was very strong this quarter up 11% with momentum across revenue lines. Net card fees were up 17% FX adjusted, a pace that we have now maintained since 2019. Card fee growth moderated as we expected and will continue to moderate before we see an inflection upward in 2026 as a result of our product refreshes. As a reminder, card members who held platinum cards prior to the refresh get to experience the new benefits for a few months before the increase in the annual fee goes into effect. The new card fee will then be applied at renewal anniversaries over the next 12 months. Additionally, card fees are amortized over a 12-month period. Putting those factors together, it takes roughly two years to fully lap the impact of the refresh on card fees with a contribution to growth peaking 12 months following the effective date of the new annual fee. Of course, the overall trajectory of card fees is also dependent on many other factors such as volume and mix of acquisitions, retention, and the full suite and cadence of product refreshes globally. Net interest income was up 12% again this quarter. We continue to grow balances largely in line with spending while driving higher NII growth by expanding the margin earned on balances. And at the same time, we've maintained best-in-class credit results. This quarter, the service fees and other revenue line includes the impact of a transaction at the Global Business Travel Group, which contributed about 5 percentage points to year-over-year growth in this line. In addition, this is the first quarter that we have fully lapped the sale of the Accertify business last May. The main takeaway here is that growth in service fees and other revenue is running higher than the low single digits that we saw in the second half of last year and earlier this year. Overall, we feel good about the momentum we have at this point in the year and we're on track for full-year revenue growth of 9 to 10%. Turning to expense performance, card member rewards and business development was up 14% in the quarter with the ratio to revenue coming in at 42%. Card member service growth stepped up from the first half of the year driven by strong early engagement with the refreshed US platinum benefits especially some of the quarterly credits that were available to customers. This is a good early sign of interest in the product and the new benefits. And as we noted previously, the cost of benefits occurs immediately while the realization of fee revenue is lagged given the timing and accounting of those fees. Our model also benefits from partners that offer value to our customers. Over the last 12 months, our partners have offered over $3 billion of value across embedded benefits, AMEX Travel, and AMEX Offers. We also manage our rewards expenses through constant innovation of our rewards and benefits. The latest one being the introduction of amount-based redemptions. As we've noted previously, we expect the rewards ratio to increase over time as a result of our investments in the value proposition and the mix shift to a more premium portfolio. We also feel good about the ability of these investments together with the expense leverage to drive sustainable mid-teens EPS growth under our long-term aspiration. Moving on to capital, we returned $2.9 billion of capital to our shareholders, including $0.6 billion of dividends and $2.3 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, around 70% over the past three years. Over the same time period, our dividend is up 58%. That brings me to the outlook for the year. While there continues to be uncertainty in the environment, given the strength of our performance, we are raising our full-year guidance. We now expect revenue growth of 9 to 10% and earnings per share between $15.20 and $15.50. This assumes a stable macroeconomic outlook as we get to the end of the year. Stepping back, we feel really good about our momentum year to date and we are very pleased with the initial demand and engagement following the platinum refresh. With that, I'll turn the call back over to Cartik and we'll take your questions.

Thank you, Christophe. Before we open up the lines for Q&A, I will ask those in the queue to please limit yourselves to just one question. Thank you for your cooperation. And with that, the operator will now open up the line for questions. Operator.

Ladies and gentlemen, if you wish to ask a question, please press star then one on your touchtone phone. You'll hear a tone indicating that you've been placed in queue. You may remove yourself from the queue at any time by pressing star then two. If you're using a speakerphone, please pick up the handset before pressing the numbers. One moment, please, for the first question. Our first question comes from the line of Sanjay Sakhrani with KBW. Please proceed with your question.

Thank you. Good morning. First of all, I appreciate all the disclosures on the platinum card and the refresh and it seems like things are going really well there. Steve, I guess there's been just a lot of resiliency if not strength across your customer base. Even corporate and small business did accelerate sequentially. So maybe you could just talk about how you're feeling about the path forward. Can things actually improve here because we've bottomed or because you had this acceleration? Maybe just in a stable macro backdrop specifically. And then just one Christophe modeling thing, the gain that you had this quarter. I mean should we think about it as an explicit benefit? I'm sorry if I missed that commentary if you had any. Thanks.

And Sanjay, on your question about the gains. So it's not a large gain. It's in the range of about $80 million. We called it out because it has an impact on the growth rate of that line, service fees and other revenue. There, you know, if you want more color, as you know, we own about 30% of the Global Business Travel Group. And I'm sure you've heard or seen that they just merged with their calls on CWT and that translated into a small gain for us which we recognized this quarter and that is moving the line a little bit. It's about five percentage points of that 17% growth that you see here FX adjusted. Even if you control for that we still would still be in double digit revenue growth. So it's really not changing that much the picture in terms of the momentum that we've reported this quarter.

Thank you. Our next question comes from the line of Ryan Nash with Goldman Sachs. Please proceed with your question.

Good morning, Steve. Good morning, Christophe. And I echo Sanjay's comments on the disclosures. Maybe Steve can maybe just talk or Christophe broad strokes on the financial impact of the platinum refresh particularly on card fees and rewards. And Christophe you broadly commented on this but does this in any way impact your ability to generate mid-teens EPS growth not over time but during the refresh period. Thank you.

Yeah. The short answer is no. You know, we try to provide some more color in terms of the dynamic and you understand I know the card fee dynamic it's delayed and then it's amortized over 12 months while the benefits are immediate and are available to everybody. That clearly puts a little bit of pressure and we signaled at the beginning of the year that you should expect a little bit of step up in card member rewards at the back end of the year on the back of this platinum refresh. The year is really playing out as we were expecting it to play out. You know, of course we had those insights, it was not all that visible to all of you but we were expecting that kind of step up in card member rewards in Q4 and we are expecting it as well for 2026 going forward. So we did all of this with our eyes wide open. It's a material investment, a significant investment, but it's our biggest product and we gave you a little bit of some global numbers as well on the size of the product. It's very large. So it is a sizable investment for us but we are still doing all of this with the ambition to deliver $15 or $15.50 EPS in terms of the coming years.

Thank you. Our next question comes from the line of Mark DeCibio with Deutsche Bank. Please proceed with your question.

Yeah, thanks. Was hoping to get a better sense of how much you think the platinum refresh contributed to the acceleration in billings growth during the quarter. I was kind of surprised at how quickly you made some of those credits like the Resy and Lululemon available. Probably stimulated some spend. And also any color on kind of the strength of demand on the consumer product versus the business?

Thank you. Our next question comes from the line of Don Fandetti with Wells Fargo. Please proceed with your question.

Hi, good morning. Steve, can you dig in a bit on what you're seeing in commercial? Obviously it's good to see the uptick. Is that organic growth or is this just sort of bouncing around? And do you see any scenarios where that could normalize as you look out to 2026? There's also some fintech competition.

Thank you. Our next question comes from the line of Craig Moore with FTX Partners. Please proceed with your question.

Yeah. Hi, good morning. Thanks for taking the questions. Wanted to ask first, when you look at the platinum card refresh, I was curious how much of that you think has been with consumers or businesses that have high-end cards with other issuers already or upgrades within your own portfolio. Trying to ascertain the degree to which this investment is creating a competitive takeaway from others. And second, if you could just talk about the international strength and where you saw that most outside the US and where you might still be lacking in terms of coverage. Thanks.

Thank you. Our next question comes from the line of Erica Najarian with UBS. Please proceed with your question.

Hi. Good morning. Christophe, if I could just dig in to Ryan's question a little bit. Thank you so much for taking us through the sort of lifespan of the increase in card fees. 2 years after the refresh, it's fully baked in, 12 months after the new card fee will peak. I'm wondering if you could walk us through in terms of the same pacing in terms of the step up and related expenses. Would it be the heaviest over the next like three to four quarters and then it would subside in the back half of let's say 2027. That walk would be helpful.

Hey good morning Erica. Predicting what's going to happen in 2027 is going to be really hard but from an engagement standpoint we're certainly going to keep engaging with card members and our goal is to increase the engagement. But from a modeling standpoint I think you can assume that the entire benefits are available to our card members front book back from day one and there are very strong engagement that we've seen right on the day of announcing the new product on September 18 was very high from day one and has remained elevated and strong since then. So I don't think there is a bit of a curve that is playing out for those benefits the way it's playing out if you want for card fees. The accounting is also a lot more straightforward. Many of the benefits are quarterly benefits so you kind of expense them as soon as the card member earns them. So there is not that kind of complexity for those benefits as there is for card fees. So it's going to be much more linear. But over time as I said the goal is actually to get more and more of these card members to engage with those benefits. So you should expect that kind of modest trend up by design.

Thank you. Our next question comes from the line of Brian Foran with Truist Securities. Please proceed with your question.

Hey, maybe piggybacking a little on Craig's question. If I think about the tiering of gold, platinum, and black, now that there's more dining on platinum, are you seeing any interactions with gold that you would call out? And then on the other side, is there white space available for some enhanced or even new card between platinum and black now that it's clear that a lot of consumers will jump at a pretty high annual fee.

Thank you. Our next question comes from the line of Rick Shane with JP Morgan. Please proceed with your question.

Hey guys, thanks. I'd kind of like to follow up related to Erica's question, particularly related to retention offers as the new higher fees roll out. I assume that that really sort of cascades over 12 months. And I'm curious how we should think about perhaps what percentage of customers take retention offers or request retention offers and if you expect that that response rate is going to be higher or lower this time based on the initial responses you've seen.

Thank you. Our next question comes from the line of Jeff Aden with Morgan Stanley. Please proceed with your question.

Hey, good morning Stephen, Christophe. Just wanted to maybe dig in a little bit more on consumer health. I know your results really speak for themselves and you've been pretty clear that you're seeing a stable spend environment the last six to seven quarters, delinquencies remain low. I guess just maybe in light of all these seemingly one-off headlines we've seen recently which the market is maybe hearing are not so one-off. There's been a lot of focus on the health of the consumer. So obviously your consumer base is very different than most, but maybe you could just give us a little bit more color and commentary into the health of your consumer base, maybe what you're seeing at the lower end of that spectrum and relatedly just anything you're noticing from the government shutdown so far. If at all. Thanks.

I don't have a lot to add. I will say, some indicators that reflect the strength of our portfolio like retail spend up 12%, restaurant spend up 9%. Very strong acquisition as well with 70% of the card members joining the franchise, choosing to join American Express on a fee-paying product. So the first thing they do is just like to pay a fee that shows confidence in their future. And of course on the credit metric part of our job is also to kind of look at every single customer in that just to see whether there are areas of weakness and it's very stable across the board very strong and reflected in the metrics in the reserve rate. There's a lot of scrutiny that goes into this modeling and we see a lot of strength and stability across the board.

Thank you. Our next question comes from the line of Mihir Bhatia with Bank of America. Please proceed with your question.

Good morning. Thank you for taking my question. I was wondering if you could spend a couple of minutes on marketing spend and how you're thinking about that not just into 4Q but also longer term or into 2026. I guess for 4Q I suspect you want to continue to support the platinum refresh but any details you can provide on where that $6 billion-ish of annualized spend is going. Maybe just give us a peek under the hood. How much is broad-based sponsorships, brand building versus more micro like the card member bonuses, retention type stuff? Thank you.

Yeah. Hey, good morning Mihir. The biggest share and the one that is moving from one quarter to another when it comes to marketing is the size of the welcome incentives. Right? That's the biggest share of this marketing line. And there is tension here in that number between we want to spend more marketing dollars but we also want that marketing dollar to be more efficient. So if you work here in the marketing organization, you're constantly battling between let's do more, let's spend more, and yet at the same time, let's make sure the dollars work really really hard for us. And the number that we end up spending each quarter and each year is the outcome of those two kind of pressure points. And we are very strict and disciplined about those two. We really do not want a great opportunity to go and so we're going to keep investing and we're going to keep invested at elevated levels and at the same time we're going to subject every single of this dollar to the level of rigor that we have spoken in the past making sure that the return on that investment we treat that as an investment meets our profitability criteria. And we are very clear in terms of stopping those investments where they are not meeting these criteria and we are getting more and more sophisticated in measuring those, tracking those and that's how we make that decision. It's not like let's spend this year like $6 billion. We kind of go in very much in the detail and it is the sum of all this analysis that lead us to that number. That's what we've done in the past and that's what we're going to keep doing going forward.

Thank you. Our next question comes from the line of Moshe Orenbuch with TD Cowen. Please proceed with your question.

Great. Thanks. You've kind of answered both the question about card fees and spending in terms of the refresh. Is there some sort of vintage-like performance in terms of spend volumes and therefore the key revenue driver that you could share with us as you kind of bring on both from new accounts and from higher spend from existing accounts. Any ways to think about that over the next several quarters?

Yeah. So, we're not disclosing those kinds of numbers around spend by vintage or revenue by vintage. But what I can tell you is that intentionally we have been, back to the conversation with Mihir about investments and marketing dollars. We've been spending more of our dollars against fee-paying products and premium products. So the customers that are the more recent customers overindex on these fee-paying products, they also overindex on being younger customers and we've made that point many many times and this quarter we shared with you that everything else equal when you look at the engagement we're getting from this younger customer they actually tend to transact 25% more than the older cohorts. So, I'm not going to share vintages and detail numbers with you, but those are the kind of forces that are at work here. More premium, younger card members, more engaged, and that's what's kind of the dynamic in the portfolio.

Thank you. Our final question will come from the line of Rob Wildhack with Autonomous Research. Please proceed with your question.

Hey guys, one more on Platinum. The $3 billion figure in partner offered value was an interesting one. As you've gone through this refresh cycle and maybe looking back over the last few refresh cycles now too. How has that partner receptivity changed with respect to co-funding, credits, and rewards? And then is there anything unique or different between the products like to call out on the same theme as you compare the gold refresh to the platinum refresh?

With that we will bring the call to an end. Thank you again for joining today's call and for your continued interest in American Express. The IR team will be available for any follow-up questions. Operator, back to you.

Ladies and gentlemen, the webcast replay will be available on our investor relations website at ir.americanexpress.com shortly after the call. You can also access a digital replay of the call at 877-660-6853 or 201-127-415, access code 13756151, after 1 p.m. Eastern time on October 17th through October 24th. That will conclude our conference call for today. Thank you for your participation. You may now disconnect.