FedEx’s Q3 profit rises 51percent but fuel costs may pinch Q4

FedEx has reported stronger-than-expected third-quarter results, registering double-digit growth in ground deliveries and international shipments.

However, the Memphis, Tenn.-based company warned the rising price of oil could crimp fourth-quarter margins.

Net income for the third quarter ended Feb. 28 rose 53 percent, reaching USD317 million, or USD1.03 per share, compared with USD207 million, or 68 cents, earned in the year-ago period.

Operating income received a boost from the timing of fuel surcharges as costs declined, FedEx said.

Quarterly revenue rose 21 percent, reaching USD7.34 billion from USD6.06 billion.

According to estimates compiled by Thomson First Call, analysts had been looking for a third-quarter profit of 98 cents a share on revenue of USD7.19 billion.

FedEx said fourth-quarter earnings would be USD1.40 to USD1.50 per share, with capital spending totaling about USD2.3 billion in 2005. ‘Customer demand is driving additional investment in aircraft, facilities and technology,’ said Alan Graf Jr., FedEx’s chief financial officer.

The First Call-derived average estimates for the fourth quarter are earnings of USD1.49 per share and revenue of USD7.69 billion.

‘Be mindful that FDX historically comes in at the higher end of its guidance and so we don’t believe this is an effort by the company to take down,’ wrote Morgan Stanley analysts.

Express revenue rises 12 percent

The company’s express group, which accounts for more than half of overall revenue, reported a 12 percent rise in third-quarter sales to USD4.92 billion as operating income amounted to USD340 million. FedEx Kinko’s came in with sales of USD499 million and operating income of USD11 million.

‘Our overall outlook continues to get better as we march our organization onward to the 10 percent margin. We’re very bullish at Express,’ said Dave Bronczek, CEO of FedEx Express during a conference call after the results.

For FedEx Express and FedEx Ground combined, the quarter’s average daily package volume grew more than 10 percent on a year-over-year basis, while FedEx International Priority revenue climbed 19 percent.

‘While international and ground package trends were both strong as expected, the big positive surprise is the Domestic Express daily volume growth of 6 percent,’ wrote R.W. Baird analyst Jon Langenfeld in a research note Thursday. The fourth-quarter estimate was ‘soft,’ he wrote but added that FedEx ‘has been hitting/beating the high end of guidance in recent quarters.

Rival UPS , which reported its fourth-quarter results in late January, said that its revenue rose 10 percent to USD9.84 billion while profits rose about 1 percent to 866 million. The company said the quarter was ‘challenging.’ Earnings at its U.S. package unit fell as the company battled FedEx and DHL for ground delivery customers.

FedEx’s shares closed down 9 cents to USD96.84 on Thursday.