By Mehnaz Yasmin and Niket Nishant
(Reuters) - American Express (NYSE:AXP)' higher-than-expected provisions in the third quarter cast a shadow over strong quarterly results and expectations of higher full-year profit, sending the company's shares down over 6% on Friday.
AmEx set aside $778 million in provisions as loans grew and fears of an economic fallout escalated, compared with analysts' average estimate of $604.1 million.
"We are mindful of the mixed signals in the broader economy and have plans in place to pivot should the operating environment change dramatically," AmEx Chief Executive Stephen Squeri said.
The Federal Reserve's interest rate hikes at the fastest pace in decades to cool inflation has sparked fears of slower growth and a downturn.
"There is perceived fear around credit quality moving forward," said Thomas Hayes, chairman and managing member at investment firm Great Hill Capital, although big U.S. banks maintain that consumers' financial health has remained strong.
Higher rates have, however, benefited lenders as average annual interest rates on credit cards leapt to a 30-year high this month, according to Bankrate.com data.
Graphic: Thirty-year high rates - https://graphics.reuters.com/CREDIT%20CARD-RATES/akveqgzbevr/SeHva-thirty-year-high-rates.png
AmEx's third-quarter net income rose 3% to $1.88 billion, or $2.47 a share, beating Street estimate of $2.41, according to Refinitiv IBES data.
Overall card member spending grew 21% and revenue 24% to $13.6 billion, helped by an upswing in millennial and GenZ customers.
The company was also buoyed by strong growth in travel and entertainment, with spending in international markets in the segment surpassing pre-pandemic levels for the first time on an adjusted basis.
It forecast a higher full-year profit than its prior estimate of $9.25 to $9.65 per share, benefiting from strong demand for both leisure and business travel following the reopening of borders after pandemic-led lockdowns.
"American Express is an economically sensitive name but so far, the economic concern doesn't seem to be having too much negative effect," said Michael Miller, equity analyst at Morningstar.
Graphic: AmEx card spending holding out against tough economy - https://graphics.reuters.com/AMEX-RESULTS/gdvzqrqdypw/chart.png