updated 12/18/2008 8:37:35 AM ET 2008-12-18T13:37:35

FedEx Corp. said Wednesday its fiscal second-quarter earnings rose 3 percent, narrowly topping Wall Street’s expectations, but it announced further cost cuts as demand continues to slump.

Chief Executive Frederick W. Smith said the company’s earnings are “increasingly being challenged by some of the worst economic conditions in the company’s 35-year operating history.”

The Memphis, Tenn.-based company earned $493 million, or $1.58 per share, compared with a year-ago profit of $479 million, or $1.54 per share. Revenue rose 1 percent to $9.54 billion.

Analysts polled by Thomson Reuters predicted a profit of $1.57 per share on revenue of $9.87 billion.

The package delivery company said it will implement more cost cutting measures, including pay cuts for senior executives and a 1-year 401(k) contribution freeze. On Jan. 1, CEO Smith will take a 20 percent pay cut, and other top brass will take a reduction in pay between 7.5 percent and 10 percent.

FedEx will also implement a 5 percent pay cut for all remaining U.S. “salaried exempt” personnel.

Combined, the company expects these measures to save $200 million through the remainder of the fiscal year ending in May and $600 million in the next fiscal year.

The company has already initiated more that $1 billion in cost saving measures including job cuts across its FedEx Freight and FedEx Office divisions, a reduction of some workers’ hours, elimination of certain bonuses and implementation of a hiring freeze.

FedEx did not issue a third-quarter earnings prediction citing economic uncertainty. It affirmed its forecast for 2009, after cutting the prediction last week.

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