FedEx sees economic recovery spreading

FedEx says the global economic recovery is broadening, as the U.S. economy gains steam and Asia continues to show strong growth.

For the U.S., FedEx confirmed what economists have been saying and what government reports have been showing: Manufacturing is leading a slow economic recovery while consumers are keeping purse strings tight.

Last month, U.S. industrial production grew more than expected and the services sector accelerated at the fastest clip in more than two years. But consistently high unemployment and stagnant pay have so far held off any surge in consumer spending.

For FedEx, the company is expanding service in Asia to capitalize on growth there. In the U.S., it's pursuing more commercial business because that's where the growth is at the moment.

The adjustments, along with huge cost reductions, are paying off. On Thursday the Memphis, Tenn., shipping company reported its first year-over-year profit increase in five quarters.

FedEx also raised its earnings forecast for the fiscal year ending in May, seeing "a continued modest recovery in the global economy."

FedEx, considered an economic bellwether because of the variety of products it ships for businesses and consumers, said Thursday it earned $239 million in the three months ended in February compared with $97 million a year earlier. Revenue rose 7 percent to $8.70 billion. The results exceeded Wall Street expectations.

The company said results were boosted by higher shipping volume, particularly at its international express and Ground units.

Average daily volume in International Priority packages grew 18 percent, led by exports from Asia.

Average daily package volume at FedEx Ground, concentrated in the U.S., grew 5 percent. Most of that growth was due to businesses shipping more packages to other businesses. The company said consumers "remain cautious."

Dan Seiver, an economist with San Diego State University, said the U.S. economy will continue to improve this year despite those hesitant consumers. Businesses will start hiring soon, he believes, but most people won't return to their pre-recession spending habits.

"The consumer is never going to come all the way back because consumption was just too big a section of (U.S. growth) in the past," he said. Consumer spending accounts for 70 percent of GDP.

Companies like FedEx that can adjust to focus more on international growth or business-to-business opportunities will benefit, according to Seiver.

FedEx's fuel costs in the quarter rose 27 percent to $810 million. The company said it will continue to invest in fuel-efficient aircraft, like the Boeing 777 freighter, to help cut costs.

A loss at the company's freight unit and partial reinstatement of some employee benefits damped results. FedEx employees are now eligible for merit raises and a company match on their 401(k) contributions after those benefits were frozen in December 2008.

For the fourth quarter, FedEx expects earnings per share of $1.17 to $1.37. FedEx said reinstatement of more employee compensation programs will hit earnings in that period as well as in the next fiscal year, which begins in June.

UPS, the world's largest shipping company, said last month that fourth-quarter earnings nearly tripled. Still, UPS said its freight business -- which transports larger products like appliances and cars -- continued to lose money.

FedEx shares gained $2.89, or 3.2 percent, at $92.69 in afternoon trading.