American Express shares surge as it lifts profit forecast

American Express shares shot up 10 percent Thursday after the credit card giant boosted its full-year profit forecast above estimates, a positive sign after recent setbacks.

The company, which is facing tougher competition after losing multiyear partnerships with Costco Wholesale and Fidelity Investment, cited underlying revenue growth in the third quarter when the impact of lost Costco business was stripped out.

It also pointed to efforts to cut expenses, as well as growth in billings in key international markets that helped to offset a drop in the US side of the business.

"Strong operating discipline and credit quality helped to keep us ahead of the 2016 financial outlook that we first provided at the beginning of the year," American Express chief executive Kenneth Chenault said in a statement.

American Express boosted its earnings range for 2016 to $5.90 to $6.00 a share, from $5.40 to $5.70 a share.

For the third quarter, net income was $1.1 billion, down 9.8 percent form the year-ago period. Results were released Wednesday after the stock market closed.

Revenues in the quarter fell 5.1 percent to $7.8 billion.

Chief Financial Officer Jeffrey Campbell acknowledged that the loss of the long-standing venture with big-box store Costco removed a "really good source" of new customers.

"We have lost that," Campbell said on a conference call with analysts. "We have effectively had to completely replace that acquisition effort with efforts in other channels."

To compensate, American Express boosted its marketing budget in the third quarter and expects a high level of spending in this area in the fourth quarter on digital advertising and other techniques.

But the company also foresees higher expenses on cash-back credit cards to fend off tougher competition from banks and other issuers in the US. Visa has stepped into its role with Fidelity, while Citigroup has replaced it at Costco.

RBC Capital expressed skepticism that American Express will be able to build on Thursday's results.

"While third-quarter results beat estimates, we expect challenges to persist," RBC Capital said. "We continue to expect competitive pressure to drive lower discount fee revenue and drive expense pressure, challenging the company's ability to meet 2017 guidance."

Shares of American Express were up 10 percent to $67.39 in afternoon trading, leading the Dow.