US economic outlook trimmed. FedEx relatively upbeat

The US Federal Reserve has downgraded its forecast for US economic growth in 2011 from 3.1-3.3% set in Apr-2011 to 2.7-2.9%, while the outlook for 2012 has been trimmed from a range of 3.5-4.2% to 3.3-3.7%. Unemployment has remained stubbornly high and the Fed now expects an average jobless rate of 8.6-8.9% in 4Q2011, compared with earlier projections of 8.4-8.7%.

Global equity markets have fallen sharply over the past six weeks over economic concerns in the US and sovereign debt problems in Europe.

FedEx sees "moderate" economic growth ahead

FedEx Corp, a bellwether for underlying global economic growth, has reported a 32% increase in earnings for the fourth quarter ended 31-May-2011 of USD1.75 per diluted share. FedEx chairman, president and CEO, Frederick Smith, said: "During fiscal 2011, an improved economy, strong customer demand and decisive actions to grow our business led to increased volumes and yields across all transportation segments." He added, "With this positive momentum, moderate [global] economic growth and subsiding cost headwinds, FedEx is well positioned to deliver strong earnings growth in fiscal 2012.”

The company's revenue rose 12% in the fourth quarter to USD10.6 billion, due to "continued strong yield improvement in all transportation segments and volume growth of ground and international express shipments". Operating profit surged 28% to USD888 million in the quarter, producing a margin of 8.4% - up one percentage point year-on-year.

For the fourth quarter, the FedEx Express segment reported a 6% rise in International Priority average daily package volume, led by exports from Asia. IP revenue per package grew 8% due to higher fuel surcharges, the favourable impact of exchange rates, improved weight per package and yield management actions.

But there are some concerns about Asian exports. One of Asia's leading freight carriers, Cathay Pacific reported weak freight traffic in May-2011 and noted the sluggishness "looks set to run through into summer". It observed a drop in exports out of Hong Kong and a "significant softening in exports from China, in particular from Shanghai", though imports have been "holding up well".

Meanwhile, FedEx's optimism is supported by latest commentary from the Air Transport Association of America (ATA), which noted that  spending on shipments of freight and mail rose 8% year-on-year in May-2011, according to a sample of US airlines. However, the increase was weighted substantially towards offshore markets; Domestic rose just 1%, while International rose 11%.

On the passenger side, the ATA noted that passenger revenue rose 14.4% in May-2011 year-on-year, marking the 17th consecutive month of revenue growth, while passenger yield rose 11.6% for the month. According to ATA Vice President and Chief Economist, John Heimlich, "increased air travel spending in May leading up to the busy summer travel season reflects the recovering economy. A double-digit [passenger] yield increase with improvements in US domestic and international markets will help the industry cope with stubbornly high energy costs.”

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