FedEx Earnings Fly Above Estimates
By Cindy Christ

Soaring fuel prices haven't grounded profits at Federal Express Corp. (FDX).

On Thursday, the world's largest express delivery service reported better-than-expected third-quarter earnings of 37 cents per share, up 42 percent from 26 cents a year ago.

Including income from a securities sale, per-share earnings were 39 cents.

Analysts polled by First/Call Thomson Financial expected earnings of 34 cents a share.

Contingency costs for a potential pilot's strike deflated results in the year-ago quarter. Without contingency costs for the strike, which was avoided, earnings would have been 44 cents per share in third quarter 1999.

In the third quarter ended Feb. 29, FedEx revenues totaled $4.5 billion, up 10 percent from $4.1 billion last year.

Net income hit $113 million, a 45 percent increase from last year's $78 million.

The company said volume in its high-margin International Priority service grew 14 percent, the fastest rate in two years.

Total average daily volume at FedEx Express and FedEx Ground grew 3 percent and 4 percent.

"Growth in our FedEx International Priority service continued to strengthen during the quarter," said FedEx executive vice president and chief financial officer Alan Graf, Jr. in a statement.

"However, higher fuel prices and severe winter storms in the U.S. impacted our financial performance. Higher fuel prices increased fuel expense during the quarter by more than $100 million," he added.

Graf said fuel costs would add more than $75 million to fourth-quarter expenses but would be offset by surcharges.

On Feb. 1, FedEx began adding a 3 percent fuel surcharge to most domestic and international shipments and a 10-cent-a -kilogram surcharge on international express deliveries.

An additional 1 percent surcharge kicks in April 1.

In a conference call, FedEx told reporters that fuel prices would add about $260 million to costs in 2000. At the same time, fuel surcharges are bringing in much less, boosting third-quarter revenues by $25 million and an expected $80 to $100 million in the fourth quarter.

Analysts forecast FedEx earnings per share of $2.21 in 2000 and $2.55 in 2001.

Graf said that FedEx plans to spur future revenue growth by cross-selling services and from FedEx Home delivery service launched in major metropolitan areas this month.

"In January, the corporation announced major rebranding and reorganization initiatives that, we firmly believe, will increase growth in fiscal 2001 and beyond," Graf said.

As part of the reorganization, the overnight delivery giant renamed the holding company and three subsidiaries to capitalize on the brand value of the familiar FedEx name and logo.

The Memphis, Tenn.-based Company also announced a new service called FedEx Home Delivery aimed at taking market share for Internet purchases from rival United Parcel Service (UPS).

Although FedEx leads the market in business-to-business electronic commerce deliveries, analysts say UPS owns the residential market, bringing home more than half of all purchases made over the Internet.

The reorganization is expected to cost FedEx about $100 million over the next three years.

FedEx shares gained $2.50, or 6.7 percent, to close at $39.75. Intraday, shares traded as high as $40.25.