The sour mood of consumers, marked by a reluctance to open their wallets, is the biggest drag on improvement and needs to change for FedEx to benefit from economic expansion, company executives said.
Businesses continue to keep a lean inventory based on consumer sentiment, heightening the focus on cost controls as well as rate increases to boost profits.
"We expect sluggish economic growth will continue, largely due to a lack of confidence that U.S. and European policy makers will effectively address current economic challenges," Chief Executive Fred Smith told analysts on a conference call.
"While there's been considerable speculation that the economy has or will soon enter a recession, this is not our view at present," he said.
Analysts had expected the company to lower its earnings guidance based on a tepid domestic economy and international trade that remains slow.
FedEx said its strong ground and freight results offset the impact of slowing economic growth, which stifled volumes, and announced more rate increases.
At FedEx Express, the largest division representing more than 60 percent of revenue, domestic revenue per package rose 13 percent on higher fuel surcharges, yield management and increased weight per package even as average daily package volume dropped 3 percent.
FedEx's International Priority revenue per package grew 16 percent for the same reasons as well as the favorable impact of exchange rates, though average daily package volume fell 4 percent driven by declines from Asia.
Given concerns about flows from Asia, and "the macro environment we're in, the stock is going to be more sensitive than UPS, which has a lot more ground and less air," said Fred Labatt, director of equity research at South Texas Money Management. The firm holds FedEx shares and sees some economic pickup in the second half of the year.
"On the other hand, the yields were better pretty much across the board in all the segments, which means they're getting pricing and the company's doing a really good job of managing their costs," Labatt added. "Also, they're still now forecasting a double dip."
HAIR NOT ON FIRE
Memphis, Tennessee-based FedEx reiterated its multiyear plan to spend $4.2 billion, which analysts expect will largely go toward updating its fleet to more fuel efficient aircraft such as the Boeing 777 freighter.
FedEx expects to benefit, particularly during peak season, if orders increase and retailers need more expedited transportation.
"Our customers' hair is not on fire," said FedEx Chief Financial Officer Alan Graf. "They're just saying, you know, we're going to be steady as she goes, so it just feels completely different than it did back in 2008."
The sheer volume of goods moved by FedEx makes its shipment trends a bellwether for consumer demand and economic growth.
FedEx's trucks and planes handle packages equivalent to about 4 percent of U.S. gross domestic product and 1.5 percent of global GDP.
The company runs the world's largest cargo airline. It is considering buying about 50 wide-body freighters from Boeing Co and Airbus to update its fleet.
FedEx, which like UPS has been able to pass along rate increases with limited customer push-back, said it will raise shipping rates a net 3.9 percent average for U.S. domestic, U.S. export and U.S. import services starting Jan. 2.
Corporate customers have cash on hand to absorb the rates, analysts said.
Pricing changes for FedEx Ground and SmartPost will be announced later in the year. The company started a 6.75 percent general rate increase earlier this month.
FedEx said fiscal first-quarter profit, which slightly beat forecasts, was $464 million, or $1.46 per share, compared with $380 million, or $1.20 per share a year ago. (For a graphic, see http://r.reuters.com/kys83s )
Analysts, on average, had expected $1.45 per-share profit, acc
