MEMPHIS (TheStreet) -- FedEx (FDX) - Get Report had a wild morning.

Shares dipped more than 2% after its 7:45 a.m. earnings release as the company badly

missed estimates. Some analysts had called for an

earnings beat.

In pre-market trading, FedEx shares were down $2.11 to $90.28. Yet shortly after 11 a.m., the stock was up $1.63 to $94.02.

On its earnings call, FedEx explained that earnings for the fiscal second quarter, which ended Nov. 30, were diminished by growth-related higher costs for items such as aircraft maintenance and the restoration of 401-K benefits. For instance, the company had costs associated with "pulling planes out of the desert

and ramping up operations," said FedEx Express CEO Dave Bronczek.

FedEx cited an 11% increase in volume for International Priority packages, a high-margin product involving rapid global deliveries. That growth was led by exports from Asia, and during the call executives reiterated the close ties between FedEx growth and China growth, which they fully expect to continue.

FedEx is showing strong double digit growth rates in Asia. "Asia in general, and China in particular, has become the manufacturing center of the world," said CEO Fred Smith, during the earnings conference call. Asked whether the Chinese might choose to enhance their own international package delivery capability, Smith allowed for the possibility but noted "the Chinese government has understood for a long time that FedEx and our competitors -- but particularly FedEx -- have provided an enormously useful opportunity" for Chinese producers.

Bronczek, dropping names, mentioned that he had dinner Wednesday night with the Chinese ambassador to the U.S., who "thanked FedEx and people like FedEx for making China more successful and more prosperous."

In a report issued following the call, Standard & Poor's analyst Jim Corridore reduced his estimate for the current fiscal year ending May 30, 2011. However, he retained a 12-month price target of $113 and reiterated a strong buy rating.

Corridore said he overestimated for the quarter due to higher-than-expected maintenance, compensation and fuel costs. "FDX is seeing costs to ramp up capacity for increased demand and is facing headwinds to reinstate compensation and 401k matches, but revenue, volumes and yield trends are strong," he said.

-- Written by Ted Reed in Charlotte, N.C.


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Ted Reed