NEW YORK (AP) — FedEx says the global economic recovery is broadening, as Asia continues to show strong growth and the US economy gains steam.
Fred Smith, CEO of the world’s second-largest package delivery company, predicted a “relatively strong” first half as major economies emerge from the recession with steady economic growth in the last six months of the year.
FedEx expects US gross domestic product to grow about three percent this year, led by the manufacturing sector, in line with economists’ expectations.
Still, Smith warned in a conference call Thursday that the housing market “could remain a problem.”
The largely positive comments came after FedEx said that fiscal third-quarter profit more than doubled from a year earlier. It was the first year-over-year profit increase for the Memphis, Tennessee, shipping company in five quarters.
FedEx also raised its earnings forecast for the fiscal year ending in May, seeing “a continued modest recovery in the global economy.” FedEx believes the strongest growth will continue in Asia, and the US and Europe are improving.
FedEx, considered an economic bellwether because of the variety of products it ships for businesses and consumers, said Thursday it earned $239 million compared with $97 million a year earlier. Revenue rose seven percent to $8.70 billion. The results exceeded Wall Street expectations.
The company said results were boosted by higher shipping volume, particularly at its international express and Ground units.
Average daily volume in International Priority packages grew 18 percent, led by exports from Asia.
Average daily package volume at FedEx Ground, concentrated in the US, grew five percent. Better volume is a good sign for FedEx – and in turn, the economy – because it means consumers and businesses are shipping more goods. FedEx said most of the growth in its ground segment was due to businesses shipping more packages to other businesses. The company said consumers “remain cautious.”
Dan Seiver, an economist with San Diego State University, said the US economy will continue to improve this year despite hesitant consumers. Seiver thinks more businesses will start hiring soon, although that won’t lead to a rebound in spending habits.
“The consumer is never going to come all the way back because consumption was just too big a section of (US growth) in the past,” he said.
Companies like FedEx that can adjust to focus more on international growth or business-to-business opportunities will benefit, according to Seiver.
“China will be one of the engines of growth,” he said.
FedEx’s fuel costs in the quarter rose 27 percent to $810 million. The company said it will continue to invest in fuel-efficient airplanes, like the Boeing 777 freighter, to help cut costs.
A loss at the company’s freight unit and partial reinstatement of some employee benefits the company took away during the recession dampened earnings.
FedEx employees are now eligible for merit raises and a company match on their 401(k) contributions after those benefits were frozen in December 2008.
For the fourth-quarter, FedEx expects earnings per share of $1.17 to $1.37. FedEx said reinstatement of more employee compensation programs will hit earnings in that period as well as in the next fiscal year, which begins in June.