FedEx Corp.

(FDX) - Get Report

reported a 40% rise in its quarterly net income and projected continuing growth despite a slight slowdown in the economy.

"There is certainly a little slowing but nothing I would characterize at this point as a headwind," CFO Alan Graf said during a conference call with analysts Thursday.

"I'm very confident through peak and through the rest of this calendar year," said Graf, who predicted that the economy could be weaker in the first quarter of 2007 but that falling fuel prices could provide a boost. He termed the 2.7% GDP growth that FedEx projects for the remainder of the year as "a fine environment for us to continue our profitable growth." The company continues to expect 3.1% annual GDP growth.

FedEx

shares were down 7 cents to $107.46 in midday trading Thursday, but they had dipped as low as $104.60 at midmorning.

Morningstar analyst Peter Smith said the shares' downturn could reflect concerns about a perceived slowdown in the economy. "Overall I thought it was a solid report, and a good testament that the economy is continuing to grow," Smith said. "But they did mention the s-word

slowdown."

Smith said results at FedEx seemed particularly strong in relation to the most recent results at rival

UPS

(UPS) - Get Report

. In July, UPS reported a 7.6% second-quarter earnings decline and noted that the economy showed signs of slowing.

The UPS decline was apparently company-specific, said Smith, who noted that FedEx ground volume rose 13% in the quarter, while UPS volume rose 4.5%. "It shows that FedEx is performing well and quite possibly taking market share from UPS," he said.

For the fiscal first quarter, which ended Aug. 31, Fed Ex said net income was $475 million, up from $339 million. Per-share earnings were $1.53, compared with the $1.52 estimate from analysts surveyed by Thomson First Call. Revenue was $8.54 billion, up 11% and ahead of the $8.39 billion estimated by analysts.

FedEx added 5 cents a share to its earnings estimate for the fiscal second quarter. That excludes the impact of 20 cents a share in upfront costs, including signing bonuses, for a new four-year pilot contract that FedEx expects to be ratified in the second quarter. The company now expects second-quarter earnings to be $1.45 to $1.60 a share, with fiscal 2007 earnings at $6.30 to $6.65 a share.

The company said its first-quarter operating margin was 9.2%, up from 7.6% for the same period a year earlier. Excluding a one-time accounting charge for facility leases in the express segment, last year's first-quarter operating margin would have been 8.5%.

"We remain confident in our ability to achieve solid profitable growth by taking advantage of strong international trade trends, increased demand for fast-cycle logistics and the expansion of online purchasing," CEO Fred Smith said. "The global economy is growing at a healthy pace with the U.S. economy growing at a moderate, sustainable rate."

In the FedEx Express segment, which includes air-freight operations, revenue was $5.64 billion, up 10%, while operating income was $467 million, up 64%. The operating margin was 8.3%, up from 5.6%.

FedEx Ground reported revenue of $1.42 billion, up 16%. Operating income was $157 million, up 6%. Operating margin was 11.1%, down from 12.1%, primarily because of higher legal fees related to a class action suit that contends FedEx drivers are employees rather than independent contractors. Segment CEO Dan Sullivan declined to quantify the fees, but said they will continue at a reduced level in the second quarter and "will dissipate" in the third and fourth quarters.

FedEx freight reported revenue of $1.01 billion, up 14%. Operating income was $150 million, up 11%, while operating margin was 14.8%, down from 15.1%. Executive Vice President Mike Glenn said that while FedEx believes its ground segment "will continue to grow at or above GDP levels, we are not as optimistic in the domestic freight sector."

At FedEx Kinko's, revenue was $504 million, down 3%. Operating income was $10 million, down 38%, while operating margin was 2.0%, down from 3.1%. The company said copy product revenue declined to reduced demand and strong competitive pricing.