By BOB SECHLER

FedEx Corp. said Thursday that fiscal first-quarter profit more than doubled, and raised its full-year earnings forecast, but international volume fell slightly short of expectations, and the package-delivery giant announced a charge to restructure its domestic trucking business.

FedEx also predicted “a phase of somewhat slower economic growth going forward,” compared with earlier this year, although Chief Executive Frederick Smith stressed that he views the trend as an indicator of a normal economic cycle, rather than as the precursor of a double-dip recession.

Mr. Smith, speaking on a conference call with analysts, said a number of factors, including solid corporate balance sheets and pent-up demand, should lead to continued global economic growth. He noted that FedEx “is seeing signs of a solid holiday shipping season.”

In midmorning composite trading on the New York Stock Exchange, FedEx shares were down 4.4% at $82.17 after the company forecast second-quarter earnings of between $1.15 and $1.35 a share, below analysts’ expectations.

The company, which is based in Memphis, Tenn., also lifted its earnings forecast for fiscal 2011 to between $4.80 and $5.25 from between $4.60 and $5.20.

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FedEx’s high-margin international-priority air freight service has been particularly strong, with quarterly volume climbing 19% from a year earlier. Still, that trailed the 23% growth rate FedEx logged in the fiscal fourth quarter ended in May, as well as its July forecast of fiscal-first-quarter growth of more than 20%. Regardless, FedEx executives said the first-quarter volume growth was largely in keeping with their expectations, and they said the business has continued to boom.

The company said it is “putting all hands on deck to keep up with the demand” for international-priority air freight, which has been a key driver of earnings, and is viewed as a barometer of global trade.

FedEx has introduced new planes to improve services between the U.S. and Asia, where eastbound volume has been driven by strong growth in shipments of electronics and other consumer products, and also is bringing back planes parked in the desert to boost capacity.

But FedEx’s domestic trucking unit continues to rack up losses in the face of overcapacity and weak pricing. The company said Thursday that it will combine its FedEx Freight and FedEx National LTL operations at the end of January.

It expects to record $150 million to $200 million in charges in the next two quarters as it cuts its full-time employee count by 1,700, or some 5%, and closes 100 facilities.

For the quarter ended Aug. 31, FedEx reported a profit of $380 million, or $1.20 a share, up sharply from $181 million, or 58 cents a share, a year earlier. In July, the company raised its per-share forecast to between $1.05 and $1.25.

Quarterly revenue rose 18% to $9.46 billion, following a year-earlier plunge of 20%. Analysts most recently forecast FedEx’s revenue at $9.42 billion.

The express-shipping segment saw revenue climb 20%. U.S. domestic revenue per package was 7% higher while average daily package volume increased 3%.

The ground-shipping segment’s revenue increased 13%, as average daily volume climbed 7%. Freight revenue was up 28% while the smaller services segment saw an 8% drop in revenue.

—Matt Jarzemsky contributed to this article.

Write to Bob Sechler at bob.sechler@dowjones.com

By SPENCER E. ANTE

Flooding in Thailand threatens to ruin Christmas. The company that makes Magna-Tiles says the flooding has closed all its production and it is temporarily out of products. WSJ Corporate Bureau Chief Andrew Dowell has the details on Lunch Break.

The recent flooding in Thailand has disrupted more than exports of cars and PCs. It also has knocked out supplies of a popular toy at the height of the holiday season.

Inventories of Magna-Tiles, which are magnetic connector toys, have disappeared, says its manufacturer, Valtech LLC. Flooding in the suburbs of Bangkok, where the Chicago-area company’s factory was located, destroyed the machinery that makes the square- and triangle-shaped tiles used to construct rocket ships, roadways and skyscrapers.

That has triggered a run on the toys, which have caught on in schools and with young children, who find that the magnets make the toys easy to assemble. Prices have soared, more than doubling in the past month since the company announced it had run out of product.

A 32-piece set of colored tiles retails for $49.50, and a 100-piece set lists for $110. But sellers on eBay are asking $150 to $250 for the 100-piece sets, while sellers on Amazon.com are offering the large set for $349.99 plus shipping. Smaller sets are listing for $65 to $100.

“We did not think the flooding would get to our industrial park but it did,” said Rudy Valenta, chief executive and owner of 14-year-old Valtech. “You can’t fight mother nature.”

Roger Glazebrook, a manager at Manhattan store Mary Arnold Toys, said the company was lucky because it stocked up on the Magna-Tiles months ago. They are the store’s top seller, he said. But the store finally ran dry on Tuesday.

“Now everyone is calling,” he said. “It’s one of those unobtainable toys.”

Magna-Tiles were introduced in 1997 and got off to a slow start. When schools began buying them as educational tools, the business took off around 2003 and it has been growing steadily ever since.

The floods came at the worst possible time. The company generates about 35% of its sales in the last three months of the year, said Mr. Valenta.

Valtech subcontracts the manufacturing of its Magna-Tiles to the factory of a major toy maker in the suburbs of Bangkok. The arrangement has worked well since the deal was struck nine years ago, said Mr. Valenta, who wouldn’t identify the company.

But in early October, monsoon rains triggered the worst flooding Thailand has seen in decades. The deluge left the factory under more than six feet of water for more than a month as runoff from the north besieged the city. Production came to a halt and ruined Valtech’s machinery.

All hasn’t been lost, though. Valtech officials were able to salvage the molds used to make the plastic squares and triangles. They plan to restart production at a new factory outside the flood zone by early next year. But even then it could take two months or more to ramp up production. Mr. Valenta hopes to start selling tiles by April.

Until then, consumers have been left to hunt for the last available Magna-Tiles. Sophia Chiang, the chief executive of a California start-up that helps nonprofits to raise money, was looking to buy more tiles for her two children. “My kids love the Magna-Tiles,” she said. “We have 150.”

But Mrs. Chiang was shocked when she searched for the tiles on Amazon.com and found sellers on the site were asking $300 for a toy she spent $100 on just months ago. She passed, because she only buys from Amazon merchants when they offer products at a discount. “I thought it was holiday markup,” she said. “I had no idea it was the Thai thing.”

Some retailers have also taken to the Internet, touting their tile inventory. “Yes we have @Magnatiles! We stock up so you don’t have to worry,” announced the Twitter account of Baltimore toy retailer aMuseToys. On Dec. 14, the company posted a follow-up tweet: “Just had an economist here say we need to raise our prices on @magnatiles. Told him we understand supply and demand, but will never raise ‘em.”

—Kate Linebaugh contributed to this article.

Write to Spencer E. Ante at spencer.ante@wsj.com

While serious bartenders tend to assemble their tools piecemeal, we layfolk often fall for the convenience of bar-in-a-box type sets. The problem with those? They generally stink. Not so with this one, a collaboration between Bombay Sapphire and New York-based fashion label Barking Irons. It includes high-quality, professional grade tools that you’ll see behind the bar of any craft-centric cocktail joint: a Boston shaker, a hefty Hawthorne strainer, an elegant Japanese bar spoon, a citrus squeezer. It even includes more esoteric bar items like a bird’s-nest double strainer used to remove small shards of ice from a shaken drink (to keep the cocktail from getting too diluted) and an ice pick, should you be interested in mastering the art of carving huge globes of ice for your Scotch. And the bag itself, modeled after an antique doctor’s bag, is gorgeous. The exterior is a buttery soft, leather and the interior is a striking sapphire-blue waxed canvas. It practically begs you to make a martini. $495, barkingirons.com

—
Kevin Sintumuang

By DAVID A. GRAHAM

Santa Maria, Calif. A year ago, Pedro Garcia and his terminally ill wife, Julia, were about to be evicted from their home of nearly 40 years after their mortgage lender foreclosed on the loan.

Today, Mr. Garcia is living in his Southern California home nearly payment free. The turn of events came after the lender, Bank of America Corp., employed an unusual tactic that is being used on occasion to help some debt-strapped seniors locked into exotic mortgages known as option ARMs from losing their homes.

“There are a lot of people who lost their houses [in the recession], so I’m fortunate,” says Mr. Garcia, a 69-year-old retired corrections officer. “We lived in this house since 1970 and this was our dream.” Mrs. Garcia died last November.

Mr. Garcia owed about $490,000 on his home, which a recent appraisal said is now worth only about $150,000. Bank of America wrote down about $405,000 of the loan. To account for the rest, the bank then issued a reverse mortgage for about $85,000. But instead of paying that amount to Mr. Garcia, as is usual with a reverse mortgage, the bank paid the proceeds to itself. A reverse mortgage is a form of equity loan available to older homeowners that generally doesn’t need to be repaid until after the homeowner dies.

That means Mr. Garcia can remain in his home without having to make mortgage payments to Bank of America. (Mr. Garcia is making small monthly payments on a second mortgage that was modified by another lender.) When he dies, the house reverts to Bank of America, and his heirs can choose to buy it back for the $85,000 plus interest and fees. Or, if the heirs choose to walk away, the bank can sell the house, and any proceeds above the loan amount would go to Mr. Garcia’s family.

Under pressure from the government, banks in general have been stepping up efforts to work with financially troubled homeowners. The Treasury Department this month said it had met its goal of beginning trial loan modifications by Nov. 1 for 500,000 borrowers as part of the Obama administration’s $75 billion foreclosure-prevention plan. But many stretched borrowers complain it’s still hard to get help from lenders, and economists expect foreclosures to continue to increase.

In Mr. Garcia’s case, the big write-down Bank of America was willing to take highlights the controversy surrounding pay-option adjustable-rate mortgages. Option ARMS, as they’re known, have become the focus of investigations and a spate of lawsuits by borrowers who believe they were misinformed about the loans’ complicated structure. It also follows the bank’s settlement last fall of predatory-lending charges brought by several state attorneys general against Countrywide Financial Corp., which Bank of America acquired last year. Under the settlement, in which the bank neither admitted nor denied guilt, the bank agreed to, where possible, modify the terms of certain subprime mortgages and option ARMs serviced by Countrywide.

Michael Drawdy, Bank of America’s senior vice president for home retention, says the bank has issued approximately 20 reverse mortgages with write-downs to borrowers like Mr. Garcia who have “dire circumstances.” He says that though the bank loses money in this process, it would lose nearly as much by foreclosing on the home and selling it in today’s market.

Option ARMS are turning out to be nearly as toxic as subprime loans. According to Lender Processing Services Inc., 32% of option ARMs were delinquent or in foreclosure as of Aug. 31, compared with 48% of subprime loans. But unlike subprime loans, which typically went to people who had weak credit, option ARMs were generally given to borrowers with good credit, including many seniors who had significant equity in their homes and wanted to refinance to take money out to pay bills. They were lured partly by “teaser” interest rates—sometimes as low as 1.5%.

One feature of option ARMS is that borrowers can select among three or four different payment choices. Many borrowers opted for the minimum payment, not realizing that by doing so, their loan balances and payments could jump over time because the payments didn’t even cover the monthly interest. Most elderly borrowers who were put into option ARMs “didn’t understand how it worked,” says Jennifer Sinton, deputy director of the Foreclosure Prevention Project at South Brooklyn Legal Services. “They’re some of the most abusive loans out there.”

Difficult to Modify

Option ARMs are proving difficult to modify. The most common way that banks modify troubled mortgages is to reduce the interest rate on the loan. But many option ARMs already have low rates, so there isn’t much room to reduce them further. And with home prices having plunged in California, Florida and many other markets where option ARMs were popular, a growing number of borrowers with these loans owe more on their mortgages than the homes are worth, even as principal payments keep rising.

Housing counselors say Bank of America is playing a leading role in dealing with option ARMs, since its settlement with state attorneys general last fall. And a key tool the bank is using, at least for seniors, is the reverse mortgage. To qualify for such a mortgage, a homeowner must be at least 62 years old.

Mr. Garcia decided to refinance his home in early 2006 and use the proceeds to renovate his three-bedroom house, which was purchased in 1970 for $23,000. At the time of the refinancing, the house was appraised at $465,000, with the mortgage broker recommending that Mr. Garcia take out $400,000. He used $70,000 on renovations and much of the rest to pay his wife’s medical bills. After he quit a post-retirement job as a construction worker to care for Mrs. Garcia, he dipped into those funds for day-to-day living expenses as well.

Mr. Garcia said he initially sought a fixed-rate mortgage, but agreed to take an option ARM because the broker convinced him the payments would be low for a long period of time. “He said it would go up only $100 per year for five years,” Mr. Garcia says. That turned out to be untrue, as the rate immediately began to adjust, based on market interest-rate benchmarks.

The mortgage, which was originated by a third-party lender and sold to Countrywide, offered four payment choices. The lowest of them, the only one Mr. Garcia says he could afford, was less than the interest on the loan, meaning the principal grew even as he made payments. After struggling to stay current, Mr. Garcia finally quit paying when the mortgage payment eclipsed the $2,600 a month he was receiving from California Public Employees’ Retirement System and Social Security.

Eviction Stayed

When a judge granted an eviction order in October of last year, Mr. Garcia contacted California Senior Legal Hotline in Sacramento. Lawyers for the group persuaded the judge to stay the eviction, basing their argument in part on the settlement agreement reached between Countrywide and several state attorneys general. Mr. Garcia’s case wasn’t subject to that settlement, however, because his home was already in foreclosure proceedings. Still, Bank of America’s Mr. Drawdy says the bank agreed to grant the reverse mortgage and write down the difference after hearing from the legal hotline group.