By Siddarth S and Niket Nishant
(Reuters) - American Express Co (NYSE:AXP)'s profit missed Wall Street estimates on Thursday despite higher spending by its customers as the credit card giant kept aside a large sum to cover potential defaults and spent more on promotions.
Shares fell as much as 7% to a near three-month low of $154.01 as expenses surged 22% to $11.1 billion in the first quarter, higher than expectations of $10.4 billion.
"While the elevated provision does not come as a surprise, the miss on expenses is likely the driving force behind the shares' move lower," UBS analysts wrote in a client note.
AmEx raised its provisions to $1.1 billion compared with a benefit of $33 million a year ago in anticipation of more cardholders falling behind on their debt repayment.
Stubborn inflation and a rapid rise in borrowing costs have begun to pinch customers of AmEx, which had so far been in a better position than its peers due to a wealthy customer base.
"We're mindful of the mixed signals in the external environment," Chief Executive Stephen Squeri said.
AmEx has missed profit estimates for second consecutive quarter, https://www.reuters.com/graphics/AMERICAN%20EXPRESS-RESULTS/lgvdkxrbmpo/chart.png
Profit fell 13% to $1.8 billion, or $2.40 per share, for the three months ended March 31, missing analysts' average estimate of $2.66, according to Refinitiv data.
The company, however, reaffirmed its profit forecast for 2023 as spending by customers on travel and entertainment surged 39%.
It expects to earn $11 to $11.40 per share compared to analysts' estimate of $11.10. Brokerage UBS said AmEx's premium customer base will power its growth outlook.
"Our customers are showing resilience even in this uncertain environment that we're all operating in," finance chief Jeff Campbell told Reuters, adding that he was yet to see any signs of a recession.
Total revenue, excluding interest expense, rose 22% to $14.3 billion in the first quarter.