March 20, 2018 / 8:53 PM / a month ago

UPDATE 3-Strong economy, higher rates lift FedEx quarterly profit

(Adds details on Texas package bomb, paragraphs 5-6; Tesla Semi order, paragraph 10)

By Eric M. Johnson

March 20 (Reuters) - Package delivery company FedEx Corp on Tuesday reported a higher quarterly net profit on revenue gains, strong volumes and changes to U.S. tax law even as it was hurt by peak holiday season costs and bad weather.

Shares in the Memphis-based company, considered an indicator of U.S. economic strength like its main rival United Parcel Service Inc, initially rose 2.6 percent in after-market trade following the results but settled down about 1 percent.

“We view this quarter as a bit of a disappointment due to weakness in the Express business,” Edward Jones analyst Logan Purk said in a client note, adding strong package volume and higher package revenue were offset by higher expenses in its Express unit.

Higher peak-related costs, integration costs of its Dutch TNT Express unit, bad weather, and other factors sapped profit by about $170 million year-over-year, FedEx said.

FedEx’s results came the day a package bomb blew up at a FedEx distribution center near San Antonio, the fifth in a series of attacks that have rocked Texas this month.

FedEx Chief Executive Officer Fred Smith told analysts on a call following the results he was thankful there were no serious injuries and said FedEx has provided law enforcement “extensive evidence from our advanced technology security systems.”

FedEx reported its daily package volume were up 6 percent in the quarter, driven by demand during the peak holiday shipping season that begins after the U.S. Thanksgiving holiday and lasts through year-end.

FedEx investments to expand capacity and choose higher-profit shipments, coupled with higher prices and volumes, paid off slightly as its Ground unit saw quarterly operating margins rise to 12.1 percent from 11 percent in the year-ago period.

Like its main rival, FedEx has spent billions of dollars on upgrading its network to handle rapidly rising deliveries of products ordered online, and investors were watching eagerly for evidence the investments were paying off.

FedEx lowered it 2018 capex spending forecast by $100 million to $5.8 billion. It said it placed a “small order” for Tesla Inc’s forthcoming all-electric Semi that it would test for its Freight unit, and said it would add 500 Office locations inside Walmart Inc stores over the next two years.

FedEx posted net income for the fiscal third quarter ended Feb. 28 of $2.07 billion, or $7.59 per diluted share, up from $562 million, or $2.07 per share, a year earlier.

Adjusted for one-time items, the company reported earnings per share of $3.72. Wall Street analysts had expected earnings per share of $3.11.

Revenue for the quarter was $16.5 billion, versus the $16.16 analysts expected.

The quarterly results include benefits of $1.53 billion, or $5.60 per diluted share, due to changes to U.S. tax law.

Reporting by Eric M. Johnson in Seattle Editing by Tom Brown and Lisa Shumaker

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