NEW YORK (MarketWatch) — FedEx Corp., the package-delivery giant and economic bellwether, said Thursday that its fiscal first-quarter profit more than doubled as the global economy strengthened and trade expanded after last year’s recession.

The company increased its fiscal-year outlook, but weaker profit margins in its core Express and Ground segments and a soft second-quarter forecast made investors nervous. The company also plans to cut 1,700 jobs and close facilities as it combines its freight businesses.

“We expect a phase of somewhat slower economic growth,” said Chairman and Chief Executive Fred Smith. “The recovery began a year ago, and we believe slower growth is consistent with historical business cycles.”

FedEx delivers disappointment

Shares of FedEx FDX, -0.78% fell nearly 3% to $83.47. The stock has bounced around over the past 52 weeks, falling just below $70 in July and trading as high as $97.75 in April as investors tried to gauge the state of the recovery.

FedEx shares are up about 6% over the past year. Over the same time frame, the benchmark S&P 500 Index SPX, +0.82% rose 4.8%.

For the quarter ended Aug. 31, FedEx said earnings jumped to $380 million, or $1.20 a share, from $181 million, or 58 cents a share, in the year-earlier period. Sales rose 18% to $9.46 billion.

Analysts polled by FactSet Research had been looking for earnings of $1.20 a share, on average, with quarterly sales pegged at $9.4 billion.

“Global economic activity continues to expand, led by the industrial sector in countries such as China, India, Mexico and Brazil,” Smith said on a post-earnings call.

For the second quarter, the company forecast earnings in the range of $1.15 to $1.35 a share, versus a FactSet-derived consensus of $1.36 a share.

As for the full fiscal year, FedEx lifted its earnings estimate to a range of $4.80 to $5.25 a share, while analysts are looking for earnings of $5.24 a share. The company’s prior forecast was for a profit of $4.60 to $5.20 a share.

The company “really only increased guidance by a small amount,” said Morningstar analyst Keith Schoonmaker. “There’s recovery, but it’s not turning into outstanding profitability, and the Street is taking a short-term view.”

Profit margins in the company’s core business declined sequentially, noted Schoonmaker, even as shipping volumes rose.

Margins at FedEx Express declined to 6% in the recent quarter from 7% in the fourth quarter. At FedEx Ground, margins fell to 14.6% from 16.3%.

“It sounds like FedEx went after volume pretty aggressively, sacrificing [product] price,” Schoonmaker said.

Freight operations to be combined

The FedEx freight business continued to suffer losses because of heavily discounted pricing to compete in a fragmented market space. The operating loss for the segment expanded to $16 million in the recent quarter versus a loss of $2 million in the year-ago period.

By Jan. 30, the company intends to combine its FedEx Freight and national less-than-truckload operations, slashing labor, closing facilities and integrating overhead to lower costs. It will also combine priority and economy shipping.

“Today, a customer could call in and pick a long-haul, short-haul, a premium or a deferred type offering with different companies — in our case, regional and national,” said Bill Logue, CEO of FedEx Freight, on the conference call.

“You notice a lot of...long-hauls are trying to penetrate the short-haul and short-hauls are trying to penetrate the long-haul to find additional revenue,” Logue said. ”But at the same time the customers are looking for that choice...more transit choice, as well as not only strictly long- or short-haul.”

FedEx expects the combined operations to improve the segment’s profitability “substantially” by fiscal 2012 with double-digit margins.

Combining the companies will result in a charge of $150 million to $250 million, spread out over the fiscal second and third quarters. The move will also reduce the company’s workforce by roughly 1,700 and result in the closing of about 100 facilities.

“The combination does add some uncertainly, but it also continues to be a loss-making segment,” said Morningstar’s Schoonmaker.