FedEx shares gained more than 7 per cent before the bell on Friday, after the package-delivery giant raised its full-year profit forecast and signalled steady shipping demand despite geopolitical tensions and surging fuel costs.
While the U.S.-Israeli war on Iran has increased air freight rates and forced rerouting of flights, FedEx, considered a bellwether for global trade, said demand in the first two weeks of March tracked expectations for a continuation of third-quarter trends.
Rising oil prices and Middle East tensions could still feed through to shipping costs in the coming weeks. FedEx has said its fuel-surcharge mechanisms continue to absorb most of the impact, though management warned a further spike could soften demand.
CEO Raj Subramaniam said FedEx is “monitoring this extremely carefully,” noting the Middle East accounts for only a small portion of its business.
Analysts at JPMorgan said FedEx’s Express segment was the standout, with stronger yields, firmer U.S. domestic volume and continued cost takeout driving a jump in adjusted operating income and helping offset softness in freight.
Shares of European peer Deutsche Post DHL Group were up 2.2 per cent, while U.S. rival UPS rose 1.4 per cent.
FedEx’s planned June 1 spinoff of the Freight unit remains a key milestone as the company sharpens its focus on higher-margin delivery businesses.
“We believe that the recently announced spin-out of FedEx Freight into a standalone company should serve as a value-unlocking event and will put more scrutiny on the operations of the Freight segment,” Raymond James analysts said.
FedEx is also working with regulators to return its grounded MD-11 fleet to service by end-May, after paying about US$120-million in related costs in the third quarter and expects another $55-million this quarter.
FedEx trades at 16.58 times projected 12-month forward earnings, versus UPS at 13.23.
The company expects adjusted profit for its fiscal year ending May 31 to be between US$19.30 and US$20.10 per share. FedEx also said it expects its full-year revenue to be up 6-6.5 per cent.