updated 9/21/2005 12:03:38 PM ET 2005-09-21T16:03:38

FedEx Corp. reported Wednesday that first quarter-profits rose modestly after an accounting change, but an increase in daily package volume helped the shipping company exceed analyst expectations.

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The parent of the world’s largest cargo airline said during a conference call that high fuel prices and Hurricane Katrina’s havoc on the Gulf Coast had little effect on the Memphis-based company’s business.

FedEx earned $339 million, or $1.10 per share, for the three months ended Aug. 31, up from $330 million, or $1.08 per share, last year. Setting aside a one-time charge from changing its lease accounting, earnings would have been $1.25 per share.

The company’s adjusted profit easily beat the average estimate of $1.17 per share from analysts surveyed by Thomson Financial.

FedEx stock hit a 52-week low earlier this week as uncertainty related to Katrina and fuel prices caused some pre-earnings jitters.

Quarterly revenue totaled $7.71 billion, up 10 percent from $6.98 billion a year earlier and exceeded analysts’ consensus target of $7.58 billion. FedEx posted double-digit increases across its shipping segments, while revenue at its Kinko’s document services unit rose 6 percent.

FedEx’s operating expenses climbed 11 percent to $7.12 billion, with fuel costs swelling 51 percent to $728 million from $483 million a year ago.

The hurricane had no significant effect on first quarter results but did damage some FedEx facilities along the Gulf Coast, said Alan G. Graf Jr., executive vice president and chief financial officer, during a conference call with market analysts.

New Orleans is not a major market for the company, which said its operations there were down only a few days after the hurricane hit. Operations have resumed in most of the affected areas except for some sections of New Orleans, Graf said.

Rising fuel costs were offset by surcharges for FedEx customers to cover those expenses, according to company officials, who said they should be able to deal with high fuel costs over time because of the surcharge.

“Despite uncertainty related to Katrina and other economic conditions, we remain optimistic about global trade and expect continued economic expansion in the U.S. and in the international markets,” said Frederick W. Smith, chairman, president and chief executive officer.

Donald Broughton, an analyst for A.G. Edwards & Sons, said FedEx avoided a lot of damage to its equipment during the hurricane by moving it out of the way as the storm approached.

“FedEx has one of the most sophisticated weather centers in the world,” Broughton said. “With a fleet of 674 planes ... you have to be aware of the weather.

“There has been positive operating momentum created between the company’s franchises that has carried over, that carries it through whatever is the issue of the day,” he added. “Fuel prices ebb and flow, hurricanes come and go, but the combination of the businesses will continue to produce financial results. The underlying theme here is the economic demand is still there.”

Smith said FedEx has helped ship and deliver more than 900 tons of relief supplies to assist in the areas hit by Katrina.

The company expects second-quarter earnings of $1.30 to $1.45 per share. FedEx also raised its yearly guidance by 5 cents to a range of $5.25 to $5.50 per share.

Analysts currently see second-quarter income of $1.35 per share and full-year earnings of $5.28 per share. FedEx earned $1.21 per share in last year’s second quarter and posted a profit of $4.78 per share for 2004.

Earlier this month, FedEx announced the first overnight express link between India and China as part of its new eastbound around-the-world flight, which connects Europe, India, China and Japan with the FedEx Express U.S. hub in Memphis.

Startup costs for this flight, together with costs associated with the westbound around-the-world flight that began in March, reduced operating income in the first quarter. Such routes take 24 to 36 months to start making money, company officials say.

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