FedEx Corp, the No. 2 package delivery company, sees improving revenue and profit this quarter and beyond, even as fuel prices mount, and shares of the economic bellwether rose more than 4 percent.
Growing volume, rate increases and expected gains from the restructuring of a freight segment brightened the outlook, overshadowing fiscal third-quarter earnings that were lowered by severe winter storms and spiking oil prices.
The bears are leaving hungry with this quarter, said John Koczara, portfolio manager at AMBS Investment Counsel, which owns FedEx shares. This is very good execution by FedEx and really continues to show FedEx can, and most likely will, remain a leveraged play on the global economy.
FedEx Express volumes were at an all-time fiscal third-quarter high, and Ground is knocking the cover off of the ball with both volume and yield gains, he said.
The world's largest cargo airline forecast higher revenue and margins on growing volume in the current quarter and beyond, and sees more shipments for reconstruction in Japan.
FedEx said fourth-quarter profit should rise to a range of $1.66 to $1.83 per share, compared with the Wall Street view of $1.66 a share. The company earned $1.33 per share in the year-earlier quarter.
We expect continued positive yield trends to improve revenues and margins in the fourth quarter and in fiscal 2012, said Alan Graf, chief financial officer.
Its forecast is based on jet fuel prices now around $3.10 and continued moderate global economic growth.
Rate increases and fuel surcharges help offset an increase in jet fuel prices, which rose an average of 19 percent per gallon in the quarter, FedEx said.
FedEx's persistent ability to increase parcel delivery prices 3 percent to 5 percent every year is another key to a favorable outlook on the company, according to Morningstar.
FedEx said rising oil prices remain a concern this year, and the near-term impact of the earthquake and tsunami in Japan is uncertain.
There will be more traffic going into Japan for reconstruction purposes and for humanitarian relief in the midst of an earthquake, tsunami and nuclear crisis for Japan, Chief Executive Fred Smith said.
I don't think in the scheme of things, with a company the size of FedEx at about $10 billion a quarter, that the net effect of Japan is going to be significant, he said.
FedEx shares rose 4.2 percent to $88.90 in midday trading.
The company said a $43 million restructuring that combined the company's FedEx Freight and FedEx National LTL (less-than-truckload) operations likely will drive FedEx Freight's return to profitability in the fourth quarter.
FedEx forecast adjusted fiscal 2011 profit of $4.83 to $5.00 per share. Analysts on average estimate a profit for the current fiscal year, ending in May, of $4.87, rising to $6.36 in fiscal 2012, according to Thomson Reuters I/B/E/S.
Winter storm disruptions and spiking oil costs hurt profit in the third quarter, but revenue topped forecasts.
Net profit fell 3 percent to $231 million, or 73 cents per share, from $239 million, or 76 cents per share, a year ago.
Revenue for the Memphis, Tennessee-based company rose 11 percent to $9.66 billion, topping analysts' average estimate of $9.61 billion, according to Thomson Reuters I/B/E/S.
Excluding one-time items, FedEx earned 81 cents per share, a penny short of analysts' expectations.
FedEx had cut its third-quarter profit forecast last month, to a range of 70 cents to 90 cents a share.
Shares of UPS, FedEx's chief competitor, rose 2 percent to $71.78.
(Editing by John Wallace, Dave Zimmerman and Steve Orlofsky)