American Express Co. is counting on customers getting back on the road and up in the skies.
The firm warned that spending on travel and entertainment would have to recover to about 70% of pre-pandemic levels by the end of the year for the company to notch revenue growth of 9% to 10%, the level analysts have been predicting.
“If T&E recovers more slowly or quickly, you could see full-year revenue growth that’s somewhat lower or higher than that 9% or 10%,” Chief Financial Officer Jeff Campbell said Friday on a conference call with analysts.
Shares of the company slid 1.9% to $144.32 at 3:26 p.m. in New York, the second-worst performance in the 30-company Dow Jones Industrial Average.
While AmEx has seen an uptick in spending on travel and entertainment in recent weeks, the category was still down 50% in the first quarter compared with a year earlier, according to a statement. Spending on airlines was down a whopping 73%.
“Travel and entertainment volume — historically 30% of total volume — remains soft,” Robert Napoli, an analyst at William Blair, said in a note to clients. “Its recovery will be a key driver of revenue in 2021 as American Express generally earns higher revenue on this volume.”
AmEx has been focused on adding new cardholders after the pandemic sapped spending on its cards for much of last year. The firm added 2.1 million customers to its proprietary business in the first three months of the year.
While 60% of those new customers came on fee-paying cards, such revenue climbed only 10% in the quarter, the smallest increase in at least two years. Total revenue also fell short of analysts’ estimates.
“I expect the growth rate of net card fees will slow for a few more quarters, driven by our decision last year to pull back on new card acquisitions as we were managing through the peak of uncertainty during the beginning of the pandemic,” Campbell said.
AmEx and its rivals have been plagued by declines in card spending as the pandemic curtailed travel and health officials urged consumers to stay home for much of last year. As unemployment soared, many lenders boosted reserves against a feared uptick in losses.
With the U.S. in the midst of the biggest vaccination campaign in history, AmEx said it’s starting to see a turnaround. Excluding travel and entertainment, volume climbed 11% during the first three months of the year, according to the statement.
And in many cases, the losses executives feared never materialized after the U.S. government pumped trillions of dollars of stimulus into the economy, including direct payments to consumers. At AmEx, write-offs dropped by more than half to $379 million.
That meant the New York-based company was able to free up $1.05 billion in reserves it had previously set aside, a move that helped boost profit to $2.2 billion, topping expectations.
“Credit is just exceptionally strong,” Campbell said in an interview. “Delinquencies and write-off rates are at some of the lowest levels we’ve ever seen.”