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FedEx delivers mixed earnings report; sees GDP growth of 2.2% in 2017

FedEx delivered fiscal second-quarter earnings Tuesday that missed Wall Street expectations, while barely beating on revenue.

Shares of the shipping company fell more than 3 percent as FedEx reported adjusted earnings of $2.80 a share on revenues of $14.93 billion. The company's full-year adjusted earnings outlook for 2017 remained unchanged at between $11.85 to $12.35 per share.

Daily package volumes for its ground business segment increased 5 percent during the quarter, driven by e-commerce and commercial package growth. The segment's revenue increased 9 percent year-over-year, but ground margins fell 2.5 percent as the company scrambled to increase its capacity by opening new facilities and bringing in more employees.

Its freight segment reported a 3 percent year-over-year increase in revenue, but a 1 percent drop in operating margin due to a lower average weight per shipment and increased information technology expenses. In its conference call, the company said its making major systems investments in the segment which will result in "significant margin improvement by fiscal-year 2020."

In the news release, Chairman and CEO Fred Smith said the company is "in the home stretch" of its peak shipping season, noting that service levels are high. The company said its seen multiple days of volume that approach or surpass double its daily average.

Looking ahead to next year, the company said it sees moderate growth in the global economy.

"After growing just 1.6 percent in calendar 16, we expect U.S. GDP growth of 2.2 percent in calendar 17, anchored by continued robust consumer spending and strong business investment," outgoing Executive Vice President Mike Glen said on the conference call.

Analysts expected the company to post earnings of $2.90 a share on $14.92 billion in revenue, according to a Thomson Reuters consensus estimate.

A bicyclist rides past a FedEx Corp. delivery truck in Miami, Florida, U.S. on Thursday, Dec. 15, 2016.
A bicyclist rides past a FedEx Corp. delivery truck in Miami, Florida, U.S. on Thursday, Dec. 15, 2016.

Gullane Capital Partners managing partner Trip Miller said the stock is lower because investors are disappointed, but the company's guidance for 2018 and beyond is "still intact." He noted the stock doesn't seem too over-priced compared with the market and is still a positive and great brand.

Regarding the ongoing TNT Express integration, Smith said the process is going smoothly and according to plan.

FedEx is in support of the Trans-Pacific Partnership, which the president-elect has said he will withdraw from on Day One. FedEx's chief executive recently spoke with CNBC about improving the trade deal. He also discussed the effect that protectionist policies could have on the company.

Another factor to consider is the impact of lower fuel costs. Although the decrease in prices would reduce costs for FedEx, it also means the shipping company misses out on fuel surcharges that bolster revenue.

On its conference call, FedEx may address any concerns investors and analysts have about weather delays affecting service in certain areas. The company put out a service alert Tuesday morning explaining that it is closely monitoring winter storms across the country.

FedEx has contingency plans in place, it said, to ensure the safety and well-being of its team members, as well as to minimize the effects of the storms.

The stock is up nearly 33 percent year to date, and is one of the best performers in the transports sector.

This is a breaking news story. Please check back for updates.