FedEx shares surge as investors cheer resilient demand, higher profit forecast

David Sekera, chief U.S. market strategist at Morningstar, joins BNN Bloomberg to discuss the outlook on the markets.

FedEx shares surged about 10 per cent before the bell on Friday, after the package-delivery giant raised its full-year profit forecast and signaled steady shipping demand despite geopolitical tensions and surging fuel costs. — FedEx shares surged ‌about seven per cent in morning trading on Friday, after the package-delivery giant raised its full-year ‌profit forecast and signaled 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 re-routing 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 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.

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Rising oil prices can ‌actually help FDX as ⁠it relates to fuel surcharges," Evercore ISI analyst Jonathan Chappell said.

However, higher shipping costs could prompt customers to trade down from premium Express services to more economical delivery options.

FedEx, which operates the world’s largest cargo air fleet by aircraft count, has suspended most of its Middle East operations and ⁠is re-routing shipments. However, it has benefited from continued growth on Asia–Europe routes, where it has redeployed capacity from Asia–U.S. lanes.

The Memphis-based company on Thursday reported third-quarter results that topped Wall Street estimates, driven by ⁠strength in its higher-margin, time-sensitive Express segment, where increased volume and stronger pricing helped deliver the most profitable peak season in its history.

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“We expect FedEx to continue to outperform the industry, and we expect Freight to improve ⁠profitability once it has passed the ‌separation friction," analysts at Stifel said.

FedEx is in a multi-year restructuring that includes slashing billions of dollars in costs, combining its distinct Ground and Express delivery options, automating some ‌operations and spinning off its Freight trucking ‌business on June 1.

(Reporting by Rashika Singh in Bengaluru; Editing by Krishna Chandra Eluri)