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FedEx 4Q Profit Rises on Growth in Ground Shipping

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Operations At A FedEx Ground Facility Ahead Of Earnings
Andrew Harrer/Bloomberg via Getty Images
By DAVID KOENIG

DALLAS -- The boom in online shopping may be hurting some store-based retailers, but it is doing wonders for FedEx (FDX).

The package-delivery giant said Wednesday that its fiscal fourth-quarter profit rose sharply thanks to the growth in e-commerce, which is boosting FedEx's ground-shipping business at a time when its core express-delivery segment is flat.

FedEx's earnings of $2.46 a share beat Wall Street's forecast by a dime. Revenue also topped expectations.

The shares jumped $6.54, or 4.7 percent, to $146.85 in midday trading.

CEO Fred Smith said the "outstanding" fourth quarter capped a solid year and put the company in strong position for the new fiscal year, which ends in May 2015. FedEx said that it would earn between $8.50 and $9 a share in the new year. That is in line with analysts' average expectation of $8.74, according to FactSet.

Cowen and Co. analyst Helane Becker said the company's forecast was a plus after Wall Street had grown more cautious about management's outlook in recent weeks.

The Memphis, Tennessee-based company said that it earned $730 million in its fiscal fourth quarter, which ended May 31, compared with $303 million a year ago, when write-downs weighed on the results. Excluding items, FedEx would have earned $2.13 a share in last year's fourth quarter.

Revenue rose 3.5 percent to $11.84 billion. Analysts surveyed by FactSet expected $11.66 billion.

Revenue in the ground-shipping business grew 8 percent, helped by gains in e-commerce. That helped offset slower growth in FedEx Express, which accounts for more than half the company's revenue.

FedEx's revenue per package on ground shipments rose 2 percent because of rate increases and surcharges on residential deliveries. The same statistic was flat for U.S. deliveries in the key express business.

Last month, FedEx announced that it will start charging more for large but light packages that take up space in its delivery trucks and add to costs. That includes bulky products that consumers buy online instead of in stores. Rival United Parcel Service (UPS) said Tuesday that it would do the same by considering a bulky package's dimensions and not just its weight in setting prices for ground shipments.

FedEx executives said they couldn't estimate how much the change might raise with the change in pricing. Although customers will pay more to ship bulky boxes, they could avoid some of the increase by packing items in smaller boxes than they use now.

"If you have received any kind of packages at your home, whether they are cookies from grandma or an e-commerce package, they're not always packed efficiently," said Mike Glenn, the company's executive vice president of market development.

The latest results marked an improvement over FedEx's third quarter, when the company was slowed by winter storms that raised costs and cut into shipping volumes. They also indicated that that while e-commerce continues to boost the ground-shipping business, international priority delivery remains flat as customers keep shifting to slower, cheaper services.

Separately, FedEx confirmed that it has received allegations about potential violations of U.S. anti-bribery law but hasn't been able to verify them. The Wall Street Journal reported that FedEx had been told of claims that its Kenya operation paid bribes to government officials.

In a statement to The Associated Press, the company said it received the allegations in December and began investigating immediately with a U.S. law firm and external auditors in East Africa. The company said that it notified the Justice Department and the Securities and Exchange Commission shortly after hearing of the allegations.

"FedEx has not found anything to substantiate the allegations, but the investigation is ongoing," the company said.


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