FedEx (NYSE: FDX), the delivery company that competes with United Parcel Service (NYSE: UPS), issued its Q4 earnings report on Wednesday. At first glance, it's scary. On a GAAP basis, FedEx said it lost $2.82 per diluted share during the quarter. You say to yourself, "Man, has the recession gotten worse!" Then you take a breath and see that the loss is sourced back to goodwill charges related to the Kinko's and Watkins Motor Lines transactions. Therefore, adjusting for those elements, FedEx earned $0.64 per diluted share.

You feel a little better as a shareholder when you realize the loss has some accounting context surrounding it. The bad feelings return, however, just like a package that you forgot to put postage on, when you check the results achieved in the year-ago period. You find out that FedEx earned $1.45 per diluted share at that time. Is there any saving grace now?

Before the market opened today, FedEx Corporation (NYSE:FDX) issued an earnings release for Q1 FY2007. Despite rising fuel prices the news is overall good. Earnings per diluted share are $1.53, up from $1.10 per diluted share in Q1 FY 2006. FedEx has annual revenues of $33 billion and 275,000 current emplopyees. Highlights for Q1 FY2007:

Revenue was $8.54 billion, up 11% from $7.7 billion Q1 FY 2006.

Operating income was $784 million, up 34% from $584 Q1 FY 2006.

Operating margin inreased from 8.5% to 9.2%.

Net income was $475 milion, up 40% from $339 in Q1 FY 2006.

FedEx recently signed a 7 year, $8 billion contract with the USPS for domestic air transportation of mail. Also, Fed Ex reached a tentative 4 year contract with the Air Line Pilots Association. The pilots' contract is expected to have 20 cents per diluted share impact on the overall bottom line. Q2 FY 2007 earnings per diluted share are forecast at $1.45-$1.60. FY 2007 total earnings per diluted share are forecast at $6.30 - $6.65, not at all bad in such a challenging business market. FY 2007 capital spending is forecast to be $3 billion.

FedEx Express revenue was up 10% to $5.64 billion, mainly due to growth in international priority package shipping. Opeating income for this segment was up 64% to $467 million.

FedEx Ground revenue was up 16% to $1.42 billion with a 13% growth in package volume due to an increase in online shopping. Operating income was up 6% to $157 million.

FedEx Freight revenue was up 14% to $1.01 billion. Operating income was up 11% to $150 million despite increased fuel charges. FedEx just completed the purchase of Watkins Motor Lines which operates in the US and Canada. FedEx wants to gorw its less-than--truckload shipping segment. The purchase of Watkins Motor Lines is forecast to add $900 million to FedEx Freight revenue in FY 2007.

FedEx Kinko's revenue was down 3% to $504 million. Operating income was down 38% to $10 million. There is overall decreased demand for photocopies as well as significant price competition. FedEx Kinko's plans to open 200 new pack-and-ship stations in FY 2007.