FedEx Raises Floor of Full-Year Forecast After Cutting Costs

  • Moderate U.S. economic growth supports demand for shipping
  • Fiscal third-quarter earnings beat analyst estimates

FedEx Corp. raised the bottom of its full-year earnings forecast range as the company nears the end of a $1.7 billion cost-reduction program and as moderate U.S. economic growth supports demand for shipments.

Profit for the year ending in May now is seen in a range of $10.70 to $10.90 a share, compared with the previous forecast of $10.40 to $10.90, FedEx said Wednesday. Analysts were anticipating $10.55 on average. The shipping company also reported fiscal third-quarter results that beat analysts’ estimates of $2.34 a share.

FedEx gained 5 percent to $151.50 at 4:44 p.m. after the close of regular trading in New York.

FedEx operates the world’s largest cargo airline as well as a fleet of package delivery trucks and a freight operation, moving goods as diverse as financial documents, pharmaceuticals and electronics around the globe. As such, it’s viewed by some as a U.S. economic bellwether.

“Our positive financial momentum should continue into our upcoming fiscal 2017, where we expect solid growth in earnings and cash flow,” Alan Graf, chief financial officer, said in a statement.

FedEx said adjusted earnings rose to $2.51 a share in the third quarter. Sales of $12.7 billion also topped analysts’ average estimate, which was $12.4 billion. A program to reduce expenses at the FedEx Express unit, the largest portion of the company, enabled operating income for that business to jump 51 percent.

Holiday shipments that exceeded the company’s expectations for both volume and size boosted costs in its FedEx Ground segment. The shipping company also said it took a charge for $204 million to cover legal settlements involving the status of independent contractors working as drivers.

FedEx had to bolster operations just before Christmas when an “unprecedented surge” in late e-commerce shipments delayed some parcels until after the holiday. The last-minute deluge snarled deliveries even though FedEx had boosted hiring by 10 percent to 55,000 and expanded package sorting and flight operations to handle the biggest projected increase in shipping in three years.

Rival United Parcel Service Inc. suffered from the same problem in 2013. Such late orders are difficult to predict and FedEx capped volume from some customers over the holidays.

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