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FedEx Profit Beats Analysts’ Estimates as Shipments Show Consumer Strength

FedEx Corp. (FDX) posted quarterly profit that beat analysts’ estimates as U.S. consumers bolstered by a better labor market increased holiday orders from online retailers.

Demand in the home delivery and SmartPost programs helped fuel a 76 percent gain in net income at FedEx, an economic bellwether because it moves goods ranging from pharmaceuticals to financial documents. The company also said today it was buying 27 new Boeing Co. freighters.

“The domestic economy is in better shape than most forecasters” say, because of consumer spending, said David Campbell, a Thompson Davis & Co. analyst in Richmond, Virginia. Christmas season retail spending will buoy results this quarter, which ends Feb. 29, Campbell said in an interview.

The residential delivery gains helped the Memphis, Tennessee-based company weather declining volumes in Asia that damped express division shipments between countries by 3 percent. Chief Executive Officer Fred Smith plans to park some aircraft flown along overseas routes in the second half and the company is delaying delivery of some larger Boeing 777 jets.

Today’s results were for the quarter that ended in November, a month in which U.S. unemployment fell to 8.6 percent, the lowest since March 2009. New claims for jobless benefits slid last week to the lowest in three years, signaling that the U.S. labor market is healing, and consumer confidence rose to the highest in two months, reports today showed.

Improved Consumer Confidence

Consumer confidence remains at very low levels, but we have seen improvement recently,” Mike Glenn, executive vice president for market development, said on an earnings call with analysts and investors. “We’re well positioned to take advantage of this increasing trend of e-commerce sales.”

FedEx advanced 8 percent to $83.47 at 4:15 p.m. in New York, the biggest gain since April 2009.

The company projected earnings of $1.25 to $1.45 a share in the current quarter, in line with the $1.31 average estimate from 21 analysts in a Bloomberg survey.

“They’re benefiting from the growth we’re seeing in online shopping,” Kevin Sterling, an analyst with BB&T Capital Markets in Richmond, Virginia, said in a telephone interview. In ground shipments, “not only are they getting volumes, they’re also getting pricing.”

Profit for the three months through November rose to $497 million, or $1.57 a share, from $283 million, or 89 cents, a year earlier, the company said in a statement. That topped the $1.53 average estimate of 22 analysts in a Bloomberg survey.

Sales climbed 10 percent to $10.6 billion, in line with estimates.

Fuel Efficiency

The Boeing 767s ordered today will be about 30 percent more fuel-efficient than the MD10 jets they’re replacing, some of which are more than 40 years old, FedEx said. Three of the jets will be delivered in fiscal 2014 and six a year from 2015 through 2018. The order is valued at $4.7 billion at catalog prices, though carriers typically negotiate discounts.

FedEx will delay receipt of 11 Boeing 777s now on order. Two will be deferred from fiscal 2013, five from 2014 and one a year from 2015 through 2018, FedEx said. The company is also exercising two options for 777 jets, which will be shipped at the end of its delivery schedule.

Boeing worked with FedEx “for months” on the schedule adjustment, said Jim Albaugh, head of the commercial airplanes division.

Boeing Customers

“They did slide some airplanes out, and we were able to slide other good customers into those positions,” Albaugh said in an interview in New York. “In fact, this really solidifies our skyline in the out years, so this worked well for them and worked well for us.”

The 777 is Boeing’s largest twin-engine jet, and the freighter version has a list price of $280.1 million.

FedEx’s deferral is a continuation of efforts during the quarter to adjust its network, particularly in Asia, “as recent destocking trends have impacted demand for our FedEx Express services,” said Chief Financial Officer Alan Graf.

Express shipments between countries in Europe climbed from last year, which Sterling said may be because the company is taking market share from competitors on the continent.

Performance in the region has been strong, Graf said, and “we think we’re going to see growth from Europe the rest of the fiscal year.”

Boeing 777 Postponement

FedEx originally planned to use the 777s on international markets where it now uses MD11s, sliding the older jets into domestic spots filled by MD10s, Chief Executive Officer Fred Smith said on the call.

When Boeing continued production of its 767 model, FedEx decided to use that aircraft to replace MD10s domestically and continue using the MD11 internationally, he said.

“So our international capacity hasn’t changed at all,” Smith said. “We’ll simply operate the MD-11s in the international system a bit longer. And the 777s and the MD-11s are not that much different in capacity. The big differences is in efficiency and range in the 777.”

To contact the reporter on this story: Natalie Doss in New York at ndoss@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net.

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