Updated from 2:24 p.m. EST

American Express

(AXP) - Get Report

said third-quarter profit rose sharply from a year ago and topped expectations of most Wall Street analysts.

The financial-services company posted net income of $687 million, or 52 cents a share, a penny more than the Thomson Financial/First Call consensus estimate. The results exceeded those of last year, when the company earned $298 million, or 22 cents a share.

Last year's results included a big restructuring charge stemming from the Sept. 11 terror attacks. American Express, which suffered substantial damage to its New York headquarters, also lost a tremendous amount of business travel in the wake of the terror attacks.

After adjusting for the $352 million pretax restructuring charge last year, net income rose 15% in the quarter. Net revenue, meanwhile, in the quarter rose 3.5% to $5.9 billion from last year's $5.7 million.

"Our performance this year demonstrates how the actions we have taken to adapt our business to a difficult market environment are not only generating solid results, but also providing added flexibility to invest in future growth initiatives," said American Express Chairman and Chief Executive Kenneth Chenault, in a prepared statement.

The stock ended the day up $1.12, or 3.4%, at $34.25, on a rather lackluster day for the overall stock market. For the year, the shares are down about 4%.

Based on analyst estimates for 2003 earnings, American Express stock trades at a price/earnings multiple of 15.

The company reiterated that it expects to earn no more than $2.01 per share this year. Right now, most Wall Street analysts expect American Express to earn $1.98 for all of 2002. However, company officials didn't offer any earnings guidance for 2003.

Last year, the stock got pummeled because of a sharp drop in business travel, the impact of the recession and bad bets made by American Express' financial planning arm in the junk bond market.

In the most recent quarter, American Express Financial Advisors continued to be the weakest link at the financial-services company. Although net income rose 5% to $152 million in the quarter, net revenue declined by about 1% from a year ago to $901 million. And this past quarter's net income numbers look even weaker, when you factor out the $73 million in Sept. 11-related charges the company took a year ago.

The company attributes the continuing poor performance of its financial planning division to "reduced management fees from lower average managed asset levels'' in its customers' accounts.

But the third-quarter results do reveal some tentative signs of a turnaround at American Express, especially in its Travel Related Services business, the company's biggest division and home to its famous credit card.

Net revenue in the card and travel division rose 4.6% from a year earlier to $4.6 billion. A big chunk of that gain was due to a 10% increase in net finance charge revenues -- money generated from interest charges on loans and overdue bills. In the most recent quarter, American Express took in $912 million in net finance charge revenues, compared with $829 million last year

It should be noted, however, that the financing side of the business benefited from a low interest-rate environment, which kept American Express' own borrowing costs down. Indeed, the company's gross revenues from finance charges actually fell by 4% in the quarter to $1.1 billion. But that decline was more than compensated for by a 38% decline in American Express' own interest expense costs.

In the most recent quarter, the company had 56.4 million credit cards issued worldwide, a 2.8 increase over a year ago.

Credit quality issues in the card business also showed a bit of improvement. The percentage of outstanding card balances that were 90 days past due declined to 2.4% from 3% in the year earlier period.

In a late-day conference call, Gary Crittenden, American Express' chief financial officer, said if unemployment were to rise in the coming months, there likely would be an increase in the percentage of customers not paying off their credit card bills on time. He said the company believes it has set aside adequate reserves for credit-card losses to compensate for any modest increase in unemployment.