FedEx Tops Earnings Expectations, Predicts Rosy Fourth Quarter

FedEx Corp. (FDX), considered a barometer for the U.S. economy, posted third-quarter results that easily blew away Wall Street's bullish expectations.

The company posted earnings of 76 cents per share, well above financial analysts' expectations for 72 cents per share, and up more than twice last year's third-quarter earnings of 31 cents per share. Revenue for the quarter, which ended Feb. 28, was $8.7 billion, up 7% from $8.14 billion last year.

According to FedEx, the performance was driven by an "improving global economy."

"The economic recovery is well under way," said FedEx CEO Frederick Smith in a conference call. "In fact, the recovery is broadening ... We see solid GDP growth in the near-term. Profits and business investment are strengthening, [but] even as the economy improves, housing could remain a problem -- bank credit is still not flowing freely."

Among the issues concerning some investors were oil prices. By the company's account, fuel costs increased 27%, year-over-year, but in December 2009, the company hiked some shipping rates to cover those costs.

"We're not really worried about oil prices," says Morgan Keegan analyst Arthur Hatfield. "Jet fuel prices have been fairly stable and FedEx has mechanisms in place to account for pricing fluctuations."

Looking forward, the company projects fourth-quarter earnings of $1.17 to $1.37 per share, while a survey of financial analysts anticipate earnings of $1.26 per share. The fourth-quarter results may be affected by reinstated employee compensation plans, according to the company. FedEx says it will also continue to invest in long-term projects that will help it reduce operating costs and improve service, such as the acquisition of additional fuel-efficient Boeing 777 freighters.

For the full 2010 fiscal year, the company raised its expectations to earnings of $3.60 to $3.80 per share, up from $3.45 to $3.75. The improved outlook reflects an economic recovery, as well as the market outlook for fuel prices.

While the numbers looked pretty on paper, investors weren't buying it. Shares of FedEx opened at $87.85, down from Wednesday's close of $89.80, and continued to slip in early trading. The stock was most recently trading down 1.3% or $1.17, at $88.63. Either shareholders saw the results as an opportunity to take profits or they were spooked by the company's warning that reinstated employee compensation programs and increased capital expenditures could "dampen" fourth-quarter and full-year 2011 results.