FedEx Profit to Beat Forecast

FedEx Corp. said Monday that its fiscal second-quarter profit will exceed forecasts because a U.S. Postal Service contract will boost the largest overnight-delivery company’s freight sales and the Sept. 11 terrorist attacks have had a smaller than expected effect on business.

Excluding $101 million in aid from the U.S. government after the attacks, FedEx said it expects profit of 40 cents to 45 cents in the quarter ending Nov. 30. On that basis, FedEx was expected to earn 35 cents.

Chairman and Chief Executive Frederick Smith has said FedEx isn’t being hurt as much as passenger airlines that cut schedules 20% after Sept. 11. Still, U.S. express-package volume has slipped 11% this quarter and international priority shipments dropped 5%.

“These are good numbers,” said Morgan Stanley Dean Witter analyst James Valentine. “FedEx was still generating 80% of their revenue when the planes were grounded. Most customers were paying air rates though FedEx was using a much lower ground cost structure.”

FedEx shares rose $1.38 to $40.86 on the New York Stock Exchange, boosting the stock above the Sept. 10 closing price of $39.98 for the first time since the attacks. The stock has risen 2.3% this year. U.S. freight revenue will increase “substantially” because of the postal contract, which began Aug. 27 and is valued at $7.2 billion over seven years, the company said. FedEx is carrying Express, Priority and first-class mail. The pact also allowed FedEx to place drop boxes for express shipments in thousands of U.S. post offices.

Second-quarter profit will be 61 cents to 66 cents a share including the aid received as part of a $15-billion U.S. government rescue package for airlines and air-cargo carriers, the company said. In addition to cutting schedules, U.S. airlines also trimmed more than 92,000 jobs since the Sept. 11 hijackings and attacks dampened travel demand.