Package delivery company FedEx Corp. on Wednesday reported a profit that missed analysts' forecast and said earnings growth would fall short of expectations due to continued softness in the U.S. economy.

The weakened industrial sector is currently limiting demand for transportation services, Chief Executive Officer Frederick Smith said in a statement. But we expect the U.S. economy to begin to show modest year-over-year improvement in the late summer to early fall time frame.

The Memphis, Tn.-based company said net income for its 2007 fiscal fourth quarter ending May 31 rose 7 percent to $610 million, or $1.96 a share, compared with $568 million, or $1.82, a year earlier.

FedEx said the results included a gain from a settlement with Airbus related to its A380 order cancellation of approximately 6 cents a share. Excluding that gain, FedEx's quarterly earnings came in below the $1.96 per share expected by Wall Street analysts, according to Reuters Estimates.

The company said domestic U.S. daily package volumes were down 1 percent in its express delivery unit, but said international package volumes rose 3 percent in the quarter. Package volumes at FedEx's ground delivery unit were up 8 percent.

Company officials said on a conference call with analysts that its international growth was primarily driven by Asia.

FedEx's results were a little light of expectations, but we are encouraged by their mix of business, said Tom Leritz, a portfolio manager at Clayton, Mo.-based Argent Capital Management, which manages assets of $920 million. Their international business continues to do well and they seem to be taking share from United Parcel Service Inc. on the ground.

As the U.S. economy improves in the second half of the year, FedEx's performance should improve, he added.

Argent does not hold FedEx stock but follows it closely.

FedEx said it expects earnings in the current quarter to be in a range of $1.45 to $1.60. Analysts have forecast earnings for the period of $1.61.

The company expects its full-year fiscal 2008 earnings to be in a range of $7.00 to $7.40 assuming the expected improvement in the U.S. economy in the late summer or early fall, compared with analyst forecasts of $7.35.

FedEx said earnings growth will be below its long-term target of 10 percent to 15 percent, due to softness in the U.S. economy.

The company said investments in its domestic service in China will negatively impact earnings throughout fiscal 2008.

FedEx's results are evidence of a slightly slower economy, said Stephen Lieber, chief investment officer of Alpine Woods Investments, which manages $13 billion in assets and holds FedEx stock.

In the current environment they are not generating extraordinary growth and FedEx's management has been quite straightforward about that, Lieber said.

Shares of FedEx were up 65 cents to $108.71 in early trading on the New York Stock Exchange.

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