FedEx Raises Forecast, Stock Climbs

Mon Aug 23, 2004
By Reshma Kapadia

NEW YORK (Reuters) - FedEx Corp. (FDX.N: Quote, Profile, Research) on Monday raised its earnings forecast for the fiscal first quarter and full year due to strong demand in several of its businesses despite concerns about the slowing growth in the U.S. economy.

Shares of the No. 1 air-express shipper climbed 3.6 percent, in mid-day trading.

The company said strong demand for its international express, ground and less-than-truckload services, or freight from several shippers consolidated into a truckload, was driving the higher outlook.

While prolonged high oil prices could hurt the world economy, the company expects its business to remain strong, Chief Financial Officer Alan Graf said, adding the economy was expected to stay on a path of sustainable expansion.

President Bush's economic advisers have warned that high energy prices have become a drag on the U.S. economy and not merely a threat to growth.

But FedEx's outlook cheered some analysts.

Lehman Bros. analyst Jennifer Ritter said, "If you read the paper, it seems like the economy is about to stall on us. They are clearly not seeing that, so that's good news."

Companies in the shipping and transport business have recently experienced strong demand amid the economic expansion, manufacturing recovery and strong import growth.

Memphis-based FedEx said it now expects earnings of $1 to $1.10 per share for the first quarter, ending Aug. 31, and $4.40 to $4.60 for the year. It previously forecast 90 cents to $1 per share for the quarter and $4.20 to $4.40 for the year.

Wall Street analysts, on average, expected 96 cents a share for the quarter and $4.48 for the year, according to Reuters Estimates.

FedEx also said it will boost capital spending to between $2 billion and $2.1 billion in fiscal 2005 to expand the capacity of its international express, ground and freight networks. In June, it forecast fiscal 2005 capital spending of $1.6 billion.

Ritter, who has an "overweight" rating on the shares, said the increase in capital spending is another sign the company does not see the economy sputtering out.

"You don't do that lightly," she said. "If they are doing that, there must be a lot of growth.


Merrill Lynch analyst Ken Hoexter raised his price target on FedEx shares by 4 percent to $93 and increased his earnings estimates, as well as his expectations for volume growth in its international priority and freight businesses.

In a research note, Hoexter also said he expects FedEx to improve margins with a cost-cutting program in its core Express division.

FedEx's forecast also bodes well for rival United Parcel Service Inc. (UPS.N: Quote, Profile, Research) , Hoexter said. With FedEx citing strength in international business, he expects UPS to continue to see international margins surpass domestic margins in the third quarter and strong domestic ground volume growth, driven by the expanding economy.

FedEx stock fell $2.85 to $82.15 Monday on the New York Stock Exchange. UPS shares climbed 80 cents to $72.11 also on the NYSE.









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