Representatives of FedEx Corp. reported a drop in quarterly earnings and warned its growth targets would be at risk if the U.S. economy did not improve, according to The Toronto Star.

The company cited a slower economic environment, lower fuel surcharges and severe winter storms for the lower profit, which still exceeded Wall Street estimates. It also gave a current-quarter outlook whose top end was above analysts` expectations.

"FedEx did a nice job in the quarter in what everyone knows is a challenging economic environment," said BB&T Capital Markets analyst John Barnes. "Their earnings guidance has spooked some people, but given that the economy is sluggish it`s entirely reasonable to temper some enthusiasm."

FedEx’s net income fell to $420 million (U.S.), or $1.35 a share, in the third quarter ending Feb. 28, from $428 million, or $1.38 a share, a year earlier. Wall Street analysts had on average expected $1.33 per share.

"The U.S. economy grew at a lower rate than we expected in the third quarter, and we saw continued adjustments in the automotive and housing markets," said FedEx chief executive Frederick Smith. "I believe, however, this represents a healthy transition for the economy as it phases into a more sustainable growth rate."

But, according to chief financial officer Alan Graf, if the U.S. economy does not improve, FedEx might not meet its fiscal 2008 target of 10 to 15 per cent growth.

Like main rival United Parcel Service Inc., FedEx is seen as a bellwether of U.S. economic activity.