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FedEx Says ‘Tepid’ U.S. Trails China, India as Shipping Revives

Fred Smith, chairman and chief executive officer of FedEx Corp. Photographer: Brendan Hoffman/Bloomberg
Fred Smith, chairman and chief executive officer of FedEx Corp. Photographer: Brendan Hoffman/Bloomberg

Sept. 30 (Bloomberg) -- FedEx Corp., the world’s biggest cargo airline, said the U.S. economic recovery will lag behind countries such as China, India and Brazil that are leading a rebound in the express-shipping industry.

China’s economy is expanding at an annual rate of 10 percent and Brazil is “like a rocket,” Chief Executive Officer Fred Smith said yesterday in a presentation to investors at FedEx headquarters in Memphis, Tennessee. The U.S. will remain “pretty tepid,” Chief Financial Officer Alan Graf said.

The comments reflected the sluggishness of the U.S. economy after the deepest recession since World War II. The Commerce Department may say today that gross domestic product expanded at an annual rate of 1.6 percent in the second quarter, the median forecast of economists surveyed by Bloomberg.

“U.S. GDP is still growing, but not as fast as people would like, or fast enough to make a dent in unemployment,” Smith said in an interview after the investor meeting.

A graph of the U.S. recovery would resemble an “asymmetrical W,” with a shallower rise following a steep decline, he said. Smith said he was “very happy” to see President Barack Obama suggest tax breaks for companies making capital expenditures or buying software, because such moves can help stimulate job creation.

FedEx isn’t counting on a strong domestic recovery in the next 18 months to meet its targets, Graf told investors. The driver is international express shipping, he said.

Long-Term Goals

That’s still enough to put FedEx “back on track” to reach its long-term goals of earnings-per-share growth of 10 percent to 15 percent and operating profit margins of 10 percent or more, Smith said.

“As we get into the second half of fiscal 2011 and roll into 2012, we’re very bullish,” Smith told investors. The company’s fiscal year ends in May.

Smith’s remarks built on his Sept. 16 comment that FedEx, the second-largest U.S. package-shipping company, was seeing signs of a “solid” holiday-shipping season. Retailers are restocking after their inventory-to-sales ratio fell to 1.33 in March and April, the lowest since comparable records began in 1992.

“The arrow in global shipping points up,” Smith said. “FedEx Express is beating air cargo in general.”

As demand returns, FedEx will raise rates in its Express unit by 3.9 percent starting Jan. 3, the same increase as this year, according to a statement yesterday. The freight and less-than-truckload units will increase rates by 6.9 percent in November, FedEx said.

Shares Rise

FedEx climbed $1.66, or 2 percent, to $86.37 yesterday in New York Stock Exchange composite trading. The shares have gained 3.5 percent this year. That trails the 16 percent advance for United Parcel Service Inc., the biggest U.S. package shipping company.

When asked by an analyst whether FedEx was interested in buying the express business from Amsterdam-based TNT NV, Smith said: “We don’t feel in Europe that there is a competitive danger or that it is essential for us to make an acquisition.”

CFO Graf said FedEx would rather invest in more Boeing Co. 777 widebody freighter jets for Asia, India, Brazil and Mexico because the returns there will be “much higher” than in Europe.

Smith, FedEx’s founder and the only CEO in the company’s 39-year history, said he will likely retire within five years and that the board reviews succession plans annually to ensure seamless continuity.

Those preparations include being ready to make a decision on an emergency basis, said Smith, 66, who declined to elaborate on who would succeed him. Any one of the company’s unit heads could step in and capably take over, he said.

Smith said he is in “very good health” and plays tennis regularly.

“Obviously, I am not going to do this forever,” he said in the interview, sipping from a can of Sprite. “Is it a year? Probably not. Is it three years? Might be. Is it five years? Almost certainly.”

To contact the reporter on this story: Mary Jane Credeur in Memphis, Tennessee, at mcredeur@bloomberg.net

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

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