FedEx heralds modest economic recovery
FedEx has announced that its fiscal third-quarter profits more than doubled from a year ago, the first year-over-year profit increase in five quarters. Revenues increased by 7 percent to $8.70 billion, and the company posted earnings of $239 million, or 76 cents per share, compared to $97 million, or 31 cents per share, in the previous third quarter. Revenues and earnings for the quarter exceeded Wall Street expectations of $8.37 billion and 72 cents per share.
Caution is still in order
The Memphis, Tennessee-based shipping company is considered an economic bellwether because of the variety of products it ships, and its positive fiscal report is being roundly applauded as an indicator of a broadening economic recovery. In an Associated Press report, however, CEO Fred Smith stated that the company’s recent economic growth is primarily the result of improvements in the manufacturing sector and cautioned that the depressed housing market could continue to pose problems.
GDP is expected to rise
Plummeting real estate values affect economic conditions across the board, from shipping companies to retail outlets to lenders specializing in installment loans for people with bad credit and similar types of payroll loans. Despite current housing market conditions, however, Smith expects a 3 percent increase in gross domestic product for 2010, which is in line with the predictions of economists.
Businesses are shipping more
Smith said the improved FedEx earnings resulted primarily from higher shipping volumes in its international express and ground units. Average daily shipping volume at FedEx Ground grew 5 percent, largely because more packages were shipped between businesses. Increased shipping by businesses is considered a positive sign for the economy as a whole. The improved earnings are also attributed to higher package weight, which is considered another positive economic sign.
FedEx has reinstated benefits
In the depth of the recession, FedEx announced sweeping cost reductions, including the suspension of 401(k) matches, executive pay cuts of 10 percent and a 20 percent cut of Smith’s own pay. Hourly wage reductions and layoffs eventually followed, all of which contributed to the third-quarter revenue increases. According to Forbes.com, the company has now reinstated merit-based pay increases and 401K matching programs, which are expected to negatively affect earnings growth in the fourth quarter.
Freight shippers continue to lose money
FedEx posted losses for the company’s freight unit in the third fiscal quarter, as fuel costs continue to hamper freight trade. Similarly, UPS, the world’s largest shipping company, reported last month that its fourth-quarter earnings nearly tripled, yet its freight business continued to lose money.