Credit Herald

FedEx Corp’s lifting of its profit forecast, on the strength of international shipments, could be a bullish sign for major U.S. industrial companies that generate much of their sales overseas.

The package-delivery giant said on Friday its profit for the just-ended quarter would top the midpoint of its prior forecast by about 50 percent, thanks in part to better-than-expected foreign deliveries.

The company kept its economic guard up, with Chief Financial Officer Alan Graf noting it remained “difficult to predict the timing and pace of any economic recovery.

But investors said the news, which sent FedEx shares up more than 7 percent, boded well for manufacturing heavyweights such as General Electric Co, United Technologies Corp and Emerson Electric Co which generate substantial amounts of revenue outside the United States.

“We’re seeing a material pickup in exports of manufactured goods, whether it’s bearings for pumps and motors or industrial machinery, literally across the board,” said Peter Sorrentino, senior vice president at Huntington Asset Advisors in Cincinnati, which holds shares of GE, United Tech and Emerson.

“It’s a repeat of history,” Sorrentino added. “It happened in the early 1990s, we had an export-led recovery that was led by manufacturing that flew under the radar for several years because consumer spending continued to lag.”

He cited industrial services company Harsco Corp, motion control systems maker Parker Hannifin Corp and diversified manufacturer Illinois Tool Works.

OFFSET TO WEAK CONSUMER SPENDING

A pickup in overseas demand would provide a note of relief in the face of a U.S. recession that is the longest and deepest since the Great Depression free instant credit reports.

But given that the consumer spending, which accounts for more than half of U.S. economic activity, remains depressed, some investors expressed skepticism that industrial demand can lead a sustainable recovery.

“The consumer is still de-leveraging, paying off loans. A lot of people say business can lead the recovery, but we’ve never seen an instance where that’s been true,” said Wayne Titche, chief investment officer, AMBS Investments in Grand Rapids, Michigan, which holds FedEx shares.

Still, the pickup in overseas demand means that industrials such as GE and United Tech that generate roughly half or more of their revenue outside their home country will see growth opportunities earlier as the world economy begins to recover.

“U.S. industrials with a large foreign sales base will be among the first to benefit from a recovery — a recovery led by foreign industrial investment, not U.S. consumer spending,” said Helane Becker, managing director at Jesup & Lamont, who follows FedEx. “I do not believe the U.S. economy will grow faster than the economies of Asian nations.”

Jacques Elmaleh, chief investment officer at Steinberg Global Asset Management in Boca Raton, Florida, noted that FedEx’s broad reach makes it a reasonably reliable indicator of economic activity.

“If they’re seeing international shipping increasing, that means economic activity is increasing,” Elmaleh said.

(Additional reporting by James B. Kelleher in Chicago, editing by Matthew Lewis)

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