FedEx Profit Jumps, Boosting Stock

The Federal Reserve is concerned about inflation, and investors are worried about a possible economic downturn.

But FedEx Corp. of Memphis, Tenn., sees only clear sailing ahead.

The shipping giant reported a 27% increase in fiscal fourth-quarter earnings Wednesday, saw its shares rise more than 5% and raised its profit forecast for the year ahead.

“We remain optimistic about the global economic environment for fiscal 2007 and our ability to effectively manage our business,” said Frederick W. Smith, FedEx founder and chief executive.

Analysts on average had predicted FedEx’s first-quarter profit for fiscal 2007 would be $1.43 a share, but FedEx is now predicting a profit of $1.45 to $1.60 a share in the first quarter.

The company predicts earnings will be $6.45 to $6.80 a share for the year, while analysts expected earnings of $6.73 a share.

Shipping companies such as FedEx can be economic barometers. If they are busy shipping goods all around the world, it’s a sign that the economy is healthy.

“They are the transferrers of goods throughout the economy,” said Ben Weagraff, an economist with Moody’s Economy.com. “You can get a good gauge of churn throughout the economy, how much interaction there is of goods.”

But Weagraff cautioned that FedEx’s projected growth didn’t necessarily mean the larger economy would follow suit.

The Federal Reserve has said that it would raise interest rates as much as necessary to curb inflation, and Wall Street economists expect Fed officials to continue raising rates over the coming months. That could slow the U.S. economy.

FedEx earned $568 million, or $1.82 a share in the quarter ended May 31. That was up from $448 million, or $1.46, a year ago. Revenue rose to $8.49 billion from $7.72 billion.

The results easily beat Wall Street expectations. On average, Wall Street analysts surveyed by Thomson Financial predicted earnings of $1.77 a share on sales of $8.42 billion.

Shares of FedEx rose $5.54 to $113.86.

Helane Becker, an analyst at New York-based Benchmark Co., said the FedEx profit estimates weren’t off significantly. “Remember you’re dealing with a $33-billion revenue company. It’s only 5 cents away. On an absolute basis, that’s $15 million,” she said.

FedEx said that strong U.S. and international economies contributed to the income growth. Continued growth in those segments also was cited in raising the outlook.

For all of fiscal 2006, FedEx reported earnings of $1.81 billion, up from $1.45 billion the previous year. Revenue was $32.2 billion, up from $29.4 billion.