FedEx Corp. expects the global economy to hit a higher gear later this year as fuel prices retreat from three-year highs and the Japanese economy recovers. While much of the growth will be driven by China and other developing nations, FedEx said the U.S. economy will improve as well.
The world's second-largest package delivery company issued the economic outlook Wednesday as it reported a 33 percent increase in earnings for the quarter ended May 31.
FedEx expects the U.S. economy to grow 2.5 percent this year and 3 percent in 2012. The company expects growth to accelerate in the second half of the year. The economy grew at an annual rate of only 1.8 percent in the first three months of the year and isn't expected to grow much faster in the current quarter.
The Federal Reserve said Wednesday it expects the economy to grow between 2.7 and 2.9 percent this year.
The Memphis, Tenn., company is considered a bellwether of global economic health among analysts and economists because it ships a wide variety of goods. Its financial performance reflects the ups and downs of business and consumer spending.
FedEx tends to perform well when industrial output is strong. The company expects U.S. industrial production to grow around 4.2 percent this year and another 4.3 percent next year.
"We believe the industrial sector will lead growth in the United States and overseas in the next two years," Chairman Frederick W. Smith said in a statement.
The company's outlook assumes that oil and fuel prices will remain below peak levels from earlier this year. The benchmark price for oil in the U.S. topped out at about $114 per barrel. It's now around $95.
"The impact of fuel prices, as always, will influence the pace of growth," Smith said.
In the company's fiscal fourth quarter, FedEx said it overcame lofty diesel and jet fuel bills to post a 33 percent increase in profits. Strong demand allowed FedEx to hold firm on shipping prices with some of its major customers, and it levied higher fuel surcharges. Revenue per package increased 10 percent in the quarter.
Kevin Sterling, an analyst with BB&T Capital Markets, said FedEx wouldn't have had such a strong hand with customers if DHL didn't bow out of the American market in 2009.
"They're starting to see the benefits of that now," Sterling said.
DHL, once the fourth-largest shipper in the U.S., ended its American service after struggling to compete with FedEx and UPS.
The U.S. continues to claim the lion's share of FedEx's business, although the company said domestic shipping volumes were flat in the March-May period. FedEx's growth was entirely in international shipping. Volumes increased in China, Canada, the United Kingdom and India.
FedEx earned $558 million, or $1.75 per share, for the three-month period ended May 31. That compares with $419 million, or $1.33 per share, in the same period last year. Revenue increased 12 percent to $10.55 billion.
Analysts had expected earnings of $1.73 per share on revenue of $10.4 billion, according to FactSet.
For the full year, FedEx earned $1.45 billion, or $4.57 per share, compared with $1.18 billion, or $3.76 per share, for fiscal 2010. Annual revenue grew 13 percent to $39.3 billion.
The company said it expects to earn between $1.40 and $1.60 per share in the first quarter and between $6.35 and $6.85 per share in its 2012 fiscal year. Wall Street was looking for quarterly earnings of $1.42 per share and annual earnings of $6.42 per share.
The outlook implies per-share earnings growth of 39 to 50 percent. UPS, the world's largest package delivery company, in late April forecast its 2011 earnings would grow 17 to 24 percent. At that point, fuel prices were rising and the economic picture in Japan was uncertain just weeks after the country's massive earthquake.
FedEx shares increased $2.31, or 2.6 percent, to $91.44.