FedEx reports rise in net profits

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FedEx Corp. said second-quarter profit rose 8 percent due to a fuel surcharge and increased global demand. It projects third-quarter earnings will trail analyst estimates.

For the fiscal second quarter that ended Nov. 30, the Memphis-based express delivery company reported net income of $511 million, up 8 percent from $471 million the previous year. It also reported revenue of $8.93 billion, up 10 percent from $8.09 billion the previous year, operating income of $839 million, up 6 percent from $790 million a year ago, and operating margin of 9.4 percent, down from last year's 9.8 percent.

Total combined average daily package volume at FedEx Express and FedEx Ground grew 7 percent year over year for the quarter, led by ground and international express package growth.

FedEx has announced a net 3.5 percent average price increase on U.S. domestic and U.S. export express shipments, and a 4.9 percent average price increase on FedEx Ground services. These changes will be effective Jan. 1. The company also announced increases to various shipment surcharges.

With the better-than-expected second quarter results and an expected strong fourth quarter, FedEx management said it is tightening its annual earnings guidance range to $6.35 to $6.65 per diluted share.

For the third quarter, earnings are expected to be $1.20 to $1.35 per diluted share. For the fourth quarter, earnings are expected to be $1.98 to $2.13 per diluted share. The capital spending forecast for the 2007 fiscal year is $3.1 billion.

Alan B. Graf Jr., executive vice president and chief financial officer of FedEx, said earnings for the second quarter were better than forecasted primarily due to lower than expected fuel prices, slightly stronger than anticipated growth at FedEx Ground and insurance proceeds related to Hurricane Katrina.

He also said FedEx's earnings guidance for the third quarter offers a difficult year-over-year comparison, because last year's third quarter benefited from the timing lag that exists between when the company purchases fuel and when its indexed fuel surcharges automatically adjust. December 2005 fuel surcharges at FedEx Express and FedEx Ground were set during the period fuel prices had spiked following Hurricane Katrina, he said.

However, he said FedEx remains optimistic that it will continue to improve full-year margins and returns during a period of moderate economic growth.

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