Earnings Preview: FedEx

NEW YORK (AP) ? Analysts predict that FedEx Corp. will report better-than-expected fiscal third-quarter earnings on Thursday, as more package shipments and higher prices offset accelerating fuel prices.

WHAT TO WATCH FOR: It's the first time since the recession where FedEx is firing on all cylinders, said BB&T Capital Markets analyst Kevin Sterling in a recent note to clients. He predicts the company's freight segment reached its fourth straight quarter of profitability in the quarter that ended in February and package delivery trends at its ground segment are rapidly improving. Plus FedEx's express segment, which mostly moves packages by air, is surprisingly strong.

That unit was the main driver of growth coming out of the recession, as companies that kept inventories low wanted goods delivered fast. There was also a worldwide shortage of planes which drove prices up quickly. But late last year that red-hot market began to slow. There are signs that it began to pick up again this month, Sterling said.

Investors are also surely hoping for comments from FedEx on UPS' $6.77 billion deal to buy TNT Express, Europe's No. 2 delivery company. Although TNT has struggled during the European financial crisis, it's a valuable prize that allows UPS to better compete with Germany's DHL. United Parcel Service Inc. will have between one-quarter and one-third of the vast European package delivery market, according to an analyst's estimate, after the deal is completed. That will likely put pressure on FedEx in the highly competitive European market.

WHY IT MATTERS: As the world's second-largest package delivery company, FedEx earnings tend to be an indicator of broader economic strength or weakness, because of the number of shipments they handle for consumers and businesses every day.

A stronger air freight market indicates that consumers are buying goods faster than retailers can stock store racks and shelves. It's the most expensive way to ship goods, but it's also the fastest. It's a key option for businesses that have kept inventories lean since the recession.

WHAT'S EXPECTED: Analysts expect FedEx to earn $1.34 per share on revenue of $10.6 billion, according to FactSet.

LAST YEAR'S QUARTER: FedEx earned $231 million, or 73 cents per share, for the quarter that ended in February of 2011. Revenue rose 11 percent to $9.66 billion, mostly due to higher prices and heavier packages.

Source: http://news.yahoo.com/earnings-preview-fedex-200408558.html

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