FedEx Posts Higher Profit, Raises Forecast

FedEx (FDX), the world's largest air-express carrier, Wednesday raised its earnings forecast for the fiscal year but said it reflected economic uncertainty surrounding the effects of Hurricane Katrina (search) and continued volatility of fuel prices.

The Memphis-based company, often considered a gauge of economic health because it carries products ranging from raw materials to finished goods, said its fiscal second quarter earnings would be in the range of $1.30 to $1.45 per share, while analysts on average have forecast $1.35 per share.

The company issued its forecast when it released its fiscal first-quarter results, showing international and U.S. domestic express shipments (search) helped push quarterly net income nearly 3 percent to $339 million, or $1.10 per share, compared with $330 million, or $1.08 per share, in the year-earlier quarter.

"Big positive surprise, especially in the face of the spike in oil prices in August," said Tim Ghriskey, chief investment officer of Solaris Asset Management, with $800 million in assets under management. "The guidance to a higher number for the year just shows that the core business is extremely strong and the company is confident that it continues to strengthen for the rest of the year."

Shares of FedEx rose more than 7 percent to $82.70 on the New York Stock Exchange, up $5.70 from Tuesday's close of $77.

For the full-year FedEx maintained its forecast for the current fiscal year, ending May 2006, to between $5.25 to $5.50 per share, up from its prior forecast of $5.20 to $5.45 per share. Analysts polled by Reuters Estimates expect the company to post a full-year profit of $5.30 per share, excluding items.

The company also maintained its capital spending forecast of $2.5 billion to be invested primarily in its highest margin service routes and new technology.

Reporting its earnings, excluding a $79 million one-time noncash charge for change of accounting for rent escalation, the company earned $1.25 per share, beating analysts' forecast of $1.17 per share. The company had forecast $1.10 to $1.25 per share.

Revenue for the quarter surged 10 percent to $7.71 billion, above analysts' forecast of $7.57 billion. Its Express segment, which typically comprises about two-thirds of its revenue, saw revenue rise 11 percent to $5.12 billion, with FedEx International Priority up 13 percent on favorable exchange rates and fuel surcharges (search).

"Hurricane Katrina had no significant effect on first quarter results, although the storm inflicted some damage to our facilities in the U.S. Gulf Coast region," Alan Graf Jr., chief financial officer, said in a statement. "Meanwhile, our operations have resumed in most of the affected areas except for sections of New Orleans."