FedEx Rides Online Shopping to Beat Wall Street Forecasts

FedEx rode the growth in online shopping to beat Wall Street expectations for the holiday season, although profit fell 19 percent because of legal bills and acquisition costs.

The package delivery company said Wednesday that peak-season demand was better than expected. FedEx raised its profit forecast for its current fiscal year and its shares jumped more than 6 percent in after-hours trading.

FedEx Corp. has prospered from online shopping by delivering packages to consumers who increasingly shop on their computers or phones rather than in stores.

The company appears likely to face growing competition from one of its retail customers, however. Amazon.com Inc. recently reached an agreement to lease up to 20 Boeing 767 aircraft to carry packages around the country, creating its own air-freight operation where it now uses carriers like FedEx and UPS. Amazon is already building a ground network of warehouses and delivery trucks.

In January, Amazon's chief financial officer said the traditional carriers can no longer handle all of the online retailer's peak-season shipping needs. He said that measures such as putting Amazon trucks on the road were meant to supplement the use of delivery companies but not replace them.

On a conference call with analysts, FedEx executives downplayed the threat of Amazon becoming a delivery rival.

Chairman and CEO Fred Smith said FedEx, UPS and the Postal Service "will remain the primary carriers for e-commerce shipments in the U.S. for the foreseeable future." FedEx estimates that those three deliver more than 95 percent of online-shopping orders in the U.S.

Executive Vice President Mike Glenn added that while Amazon's plans have "grabbed headlines, the reality is it would be a daunting task requiring tens of billions of dollars in capital and years to build" a network to rival FedEx's. He added that no single shipping customer accounts for more than 3 percent of FedEx revenue.

For the quarter ended Feb. 29, FedEx earned net income of $507 million, or $1.84 per share, down from $628 million, or $2.18 per share, a year earlier. The results were hurt by legal expenses - mostly on lawsuits by drivers who were classified as independent contractors instead of employees - and costs related to the pending acquisition of Dutch delivery firm TNT Express.

Excluding those costs, FedEx said it would have earned $2.51 per share. Analysts, who usually exclude non-repeating costs from their forecasts, had expected FedEx to earn $2.35 per share, according to a FactSet survey of 24 analysts and $2.33 per share by 12 analysts surveyed by Zacks Investment Research.

Revenue rose 8 percent to $12.65 billion, also topping expectations. The 17 analysts surveyed by FactSet had predicted $12.36 billion.

Sales in FedEx's ground business jumped 30 percent to $4.41 billion, helped by the growth in online shopping. FedEx blamed lower fuel surcharges for a 1 percent revenue decline, to $6.56 billion, in its express unit.

The Memphis, Tennessee-based company raised its forecast range for earnings during the full fiscal year that ends this spring. It predicted profit excluding special items to be between $10.70 and $10.90 per share, compared with the prior prediction of $10.40 to $10.90, and analysts' forecast of $10.55 per share.

FedEx shares closed regular trading at $144.27 after gaining $1.20. In after-hours trading following the release of the earnings report, they were up another $8.88, or 6.2 percent, to $153.15.