FedEx signals better economy; express shipping rates to rise

Wed Sep 18, 2013 12:06pm EDT

Handlers scan and affix a courier route label onto packages moving down the belt at the Marina Del Rey, California FedEx station December 12, 2011. REUTERS/Fred Prouser

Handlers scan and affix a courier route label onto packages moving down the belt at the Marina Del Rey, California FedEx station December 12, 2011.

Credit: Reuters/Fred Prouser

(Reuters) - Shares of FedEx Corp (FDX.N) jumped as much as 4 percent on Wednesday after the shipping company said cost cuts helped it to post a better-than-expected quarterly profit, and it announced rates would increase next year for express shipping amid improving global economic conditions.

The company also backed its full-year profit outlook for earnings-per-share growth of 7 percent to 13 percent.

FedEx, considered an economic bellwether because of the massive volume of goods it moves around the world, said on a conference call that the company was seeing "signs of improvement" in China and Europe.

"The FedEx economic forecast calls for continued moderate growth both in the global and domestic economy," Mike Glenn, executive vice president of market development, said on the call.

FedEx said express shipping rates would increase an average 3.9 percent for U.S. domestic and international services, effective January 6. Rate increases for its ground courier facilities will be announced later this year, the company said.

Deutsche Post (DPWGn.DE), the owner of DHL, quickly followed with its own planned express shipping price increases for 2014. A DHL spokesman declined to give details.

FedEx's express business has suffered recently as clients chose slower but cheaper delivery options. To combat that, the company revamped its routes, cutting capacity to Asia and other international markets.

Analysts said FedEx's plan for raising prices indicates the market is stabilizing after customers moved away from overnight delivery. The cutback in less profitable routes should help the overnight business remain profitable even at lower volumes, they said.

"We've seen most of the shift (from express to cheaper options) happen at this point," said Logan Purk, an industrials analyst for Edward Jones.

Purk and S&P Capital IQ equity analyst Jim Corridore both noted FedEx tends to come in at or above its profit forecasts.

FedEx said on Wednesday it earned $489 million, or $1.53 a share for its first quarter that ended August 31.

Memphis, Tennessee-based FedEx beat Wall Street profit estimates by 3 cents on cost cuts and other price increases it implemented earlier.

Its shares were up 2.7 percent, or about $3.24, at $113.93 in late morning New York Stock Exchange trading.

(Reporting by Nivedita Bhattacharjee in Chicago. Additional reporting by Matthias Inverardi in Duesseldorf; Editing by Maureen Bavdek)

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