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This article, originally published at 4:59 p.m. on Thursday, Jan. 19, 2017, has been updated with company comments.

American Express (AXP) - Get American Express Company Report  posted lower profit in the last three months of 2016 than analysts expected as CEO Kenneth Chenault boosted promotional spending by 35% to replace some of the revenue lost with the Costco portfolio.

Earnings of 91 cents a share compared with the 98-cent average estimate from analysts surveyed by FactSet, while the New York-based company saidnet income dropped 8% from a year earlier to $825 million.

"Our underlying business performance gave us the flexibility to significantly ramp up marketing and promotion initiatives that have been targeted to provide a mix of returns over the short, medium and longer term," Chenault said in a statement. "While we continue to operate in a very challenging environment, we ended the year in a stronger position than we started and have built momentum across our business."

Companywide, revenue fell 4% to $8 billion but still beat the FactSet consensus of $7.9 billion. Excluding the branded-card deal with Costco (COST) - Get Costco Wholesale Corporation Report , which was included in last year's results, as well as the effects of foreign exchange rates, net revenue was 6% higher, partly due to "higher adjusted card member spending."

Net interest income -- which measures the profitability of a finance company's lending -- was $1.4 billion, a gain of 12% after subtracting Costco from 2015 results and excluding currency-exchange shifts. Citigroup (C) - Get Citigroup Inc. Report  , one of the largest U.S. banks, won the rights to Costco's card after the AmEx agreement collapsed, and the bank processes the transactions through the Visa (V) - Get Visa Inc. Class A Report network.

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For most of 2016, the cost of rewards offered to customers as an incentive to make purchases with their cards didn't grow any faster than billings, CFO Jeffrey Campbell said on an earnings call. That dynamic shifted in the fourth quarter, which "should tell you pretty clearly that what drove that change in trend was the introduction of the different benefits to both the consumer and small business platinum cards in the U.S." 

The rewards paid off, though: Net card fees increased 6% amid growth in AmEx's U.S. platinum and gold charge cards and its Delta Air Lines (DAL) - Get Delta Air Lines, Inc. Report portfolio. Marketing and promotion expenses were $1.2 billion, partially due to an increase in marketing support for the platinum card to increase its acceptance by small merchants. 

"We anticipate that AmEx will need to make further investments given generous card reward offerings from competitors, most notably JPMorgan Chase (JPM) - Get JPMorgan Chase & Co. Report and Citi," Kyle Sanders, an Edward Jones analyst who maintains a sell rating on the stock, wrote in a note. "Outside of lending, AmEx's core business continues to struggle."

The company reported loans of $66.7 billion, up 11% from the prior year and growing faster than the industry average.

Total costs, meanwhile, dropped 2% to $6.2 billion, driving progress toward Chenault's goal of cutting $1 billion in expenses during the year. AmEx increased its 2017 earning-per-share outlook by 8 cents to as high as $5.68. 

The company's shares dropped 0.5% to $76.30 after the close of regular trading in New York on Thursday, trimming a year-to-date gain of almost 3.4%.

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