Globe and Mail-----FEDEX DELIVERS MIXED MESSAGE

FedEx Corp. said yesterday it sees signs of improvement in the global economy as international shipments pick up, but warned its profit will remain weak at least through the end of the year.

The world’s second-largest package delivery company, considered a bellwether of economic health, said fiscal 2010 first-quarter earnings fell 53 per cent – matching its prediction released last week. It also reiterated a fiscal second-quarter view that implies a modest uptick in worldwide economic activity.

FedEx indicated it might start beefing up schedules for flight crew and hourly personnel as package volume improves, but it doesn’t expect that to happen soon. It also doesn’t expect to start adding back employees it cut during the worst of the downturn in the near future.

Over the last year, the company has laid off workers and cut wages for thousands of employees to cut costs.

The Memphis, Tenn. – based company reported earnings of $181-million (U.S.), or 58 cents per share for the quarter ended in August, compared with $384-million, or $1.23, a year ago. Revenue fell 20 per cent to about $8-billion.

Analysts predicted profit of 58 cents per share on revenue of $8.24-billion.

In late July its larger rival – UPS Inc. – said its second-quarter profit sank 49 per cent and warned that its near-term outlook probably wouldn’t be any better.

FedEx said sales are still hurt by the soft economy, as people ship slower and less often. Lower fuel costs also meant FedEx collected lower fuel surcharges – fees passed on to customers based on the price of fuel.

But FedEx said it was able to offset some of the shortfall by “vigilantly” cutting costs. Volume in International Priority – its most profitable segment – was also better than expected.

“For more than a year, we have vigilantly managed costs without sacrificing service, invested wisely and minimized job losses so that FedEx will emerge a stronger, more profitable company as the global economic recovery takes hold,” said chairman, president and CEO Frederick Smith.

The company expects to save about $3-billion by the end of fiscal 2010 in May from cost cuts made since June of 2008.

FedEx reiterated its profit prediction of 65 to 90 cents per share for the second quarter ending in November. That’s down from $1.23 a year ago.

In a conference call with analysts, the company said it expects more packages will be shipped domestically over the next three months as the U.S. economy regains some footing with a bottoming housing market, improving auto sales and other positive economic data. “With the misty crystal ball that I have, we do expect year-over-year growth in the U.S. domestic package business,” said chief financial officer Alan Graf Jr.

“We also have a possibility that we can grow International Priority on a year-over-year basis. Those aren’t going to be spectacular growth numbers, but they’re going to feel good if they’re not in red.”