FedEx Corp raised its fiscal full-year outlook on record holiday shipments, sending shares higher even as its second-quarter profit missed analyst estimates.

We're now more bullish about the remainder of the year based on our record-setting peak volumes and greater anticipated customer demand for our services, said Chief Executive Fred Smith on a Thursday conference call. We believe consumer and business sentiments are improving.

Higher compensation costs cut into profit in the second quarter, while international volume lagged the company's expectations and fuel surcharges did not keep pace with rising costs, FedEx said.

Raising guidance in the face of these headwinds, capturing market share and continuing to make inroads overseas are all positive, said Alan Lancz, president of Alan B. Lancz Inc in Toledo, Ohio, who owns FedEx shares.

The company's bright outlook trumps the profit miss, he said.

Momentum from holiday shipping is moderating, but high. The company expects that its business in Asia and growth from emerging markets and acquisitions should boost profit margins in the second half of this fiscal year and beyond.

FedEx raised its full-year forecast to $5 to $5.30 a share from its prior estimate of $4.80 to $5.25.

Its shares closed up 2 percent at $94.22 on Thursday. Shares of larger rival United Parcel Service rose 2.1 percent to close at $73.76.

Deutsche Bank has a $115 FedEx share price target, saying that costs should abate in the second half of fiscal 2011.

Investors are giving them the benefit of the doubt that these cost headwinds will fade, said Edward Jones analyst Matt Collins.

The 223 million peak holiday season shipments that the company expects worldwide would be up 11 percent from a year ago, driven by online and catalog retailers. Books, clothing, consumer electronics and luxury goods account for the volume this year.

This quarter was disappointing, there's no question about it, Sterne Agee analyst Jeffrey Kauffman said. But the volumes are there and getting better.

Separately, FedEx earlier on Thursday said it was expanding into the Mexican domestic express business by buying MultiPack, in a deal that it expects to close in the second calendar quarter of 2011.

CONSUMERS SHOPPING, SHIPPING

U.S. retail sales in November rose for a fifth straight month as people flocked to malls at the start of the holiday shopping season.

On top of that, U.S. industrial production rose in November at its fastest pace in four months.

Fedex revised its internal GDP forecasts up for the current fiscal year to 3.3 percent from 3 percent and its calendar year 2011 forecast to 2.9 percent from 2.6 percent.

The company's fiscal second-quarter net profit was $283 million, or $0.89 per share, compared with $345 million, or $1.10 per share, a year earlier.

Excluding items, the company reported a profit of $1.16 a share. Analysts, on average, were expecting earnings of $1.31, according to Thomson Reuters I/B/E/S. Revenue rose 12 percent to $9.63 billion, compared with forecasts of $9.7 billion.

UPS, which expects a 7.5 percent rise in peak season deliveries to about 430 million, in October beat quarterly forecasts and raised its full-year outlook on expectations of modest holiday season growth in a slow economic recovery.

(Reporting by Lynn Adler. Additional reporting by Scott Malone in Boston. Editing by Dave Zimmerman and Robert MacMillan)

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