Bloomberg News

FedEx 2012 Profit May Top Estimates as Economy Strengthens

June 22, 2011

(Updates with closing share price in fourth paragraph.)

June 22 (Bloomberg) -- FedEx Corp. predicted a fiscal 2012 profit that may exceed analysts’ estimates as a strengthening economic recovery buoys demand for international air-cargo shipments and jet-fuel costs ease.

The earnings forecast of $6.35 to $6.85 a share compares with an average of $6.54 from 26 analysts surveyed by Bloomberg. FedEx, operator of the world’s biggest cargo airline, and United Parcel Service Inc. deliver goods ranging from financial documents to pharmaceuticals, making them economic bellwethers.

“The near-term softness in the economy will be temporary as fuel prices have retreated from their April highs and the Japanese economy recovers,” Chief Executive Officer Fred Smith said on a conference call after FedEx posted a quarterly profit. “Going forward, we see stronger economic growth.”

FedEx gained $2.31, or 2.6 percent, to $91.44 at 4:15 p.m. in New York Stock Exchange composite trading, the biggest gain since May 5.

International shipments in the Memphis, Tennessee-based company’s express division, along with gains in the ground unit, will drive growth in the year ending May 31, Chief Financial Officer Alan Graf said on the call. The express unit’s revenue per package, or yield, increased 10 percent to $22.69 in the quarter through May.

Quarterly Profit Gain

“They see the flow of packages daily,” Peter Nesvold, a New York-based analyst with Jefferies and Co. said in a telephone interview. “Based on their insight from that, they think that what’s happened in the last couple months or so is more or less temporary.”

FedEx expects the U.S. economy to grow 2.5 percent in calendar 2011 and 3 percent the year after, Mike Glenn, a company spokesman, said on the call.

Net income in the fiscal fourth quarter climbed 33 percent to $558 million, or $1.75 a share, from $419 million, or $1.33 a share, a year earlier, the company said. Analysts had projected net income of $1.71 a share, the average of 12 estimates in a Bloomberg survey.

The express unit’s gains were led by a 15 percent volume increase in domestic shipments outside the U.S. International priority shipment volume climbed 6 percent.

“Volumes were pretty good across the board, particularly international out of Asia,” said Kevin Sterling, an analyst with BB&T Capital Markets in Richmond, Virginia, who has a “buy” rating on the shares. “So they continue to have a strong international presence and are benefitting from that.”

The company posted profit of $1.45 billion, or $4.57 a share, on sales of $39.3 billion in the year through May. Quarterly revenue climbed 12 percent to $10.6 billion.

FedEx, which spent 44 percent more on fuel during the quarter through May as oil prices rose amid unrest in the Middle East, recoups that expense through a surcharge with a two-month lag.

--Editors: James Langford, Romaine Bostick

To contact the reporter on this story: Natalie Doss in New York at ndoss@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net


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