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By Rashika Singh, Abhinav Parmar and Anshuman Tripathy

March 20 (Reuters) - FedEx FDX.N shares pared gains after rising about 7% early on Friday, as concerns about the Iran war and the package-delivery giant's quarterly outlook undermined some confidence in its prospects.

Shares of the Memphis, Tennessee-based company finished up just 0.8% to $358.85 at the trading session's close.

FedEx raised its fiscal full-year profit forecast late Thursday and signaled steady shipping demand despite geopolitical tensions and surging fuel costs. FedEx's fourth quarter ends in May.

While the U.S.-Israeli war on Iran has increased air freight rates and forced re-routing of flights, FedEx, considered a bellwether for global trade, said demand in the first two weeks of March tracked expectations for a continuation of third-quarter trends.

Evercore ISI analyst Jonathan Chappell said that FedEx shares pared gains mostly due to pressure on the overall market from the war, which has sent the cost of fuel sharply higher.

That could translate into higher shipping costs, which could prompt customers to trade down from profitable premium Express services to more economical delivery options that make less money for FedEx, he said.

Consumers, having seen gasoline prices spike in the last few weeks, will most likely start spending less, said Kevin O'Marah, chief research officer at Zero100, who advises Walmart, PepsiCo, Nestlé, among others, on inflation and supply-chain risk.

"The demand for freight will almost definitely suffer," O'Marah said.

Investors digesting Thursday's results were realizing that the higher full-year profit forecast was driven by the third-quarter beat, while the midpoint of guidance for the current quarter came in below the consensus estimate, Chappell said.

"It may prove conservative, but it doesn't point to a continuation of the past quarter's upside," he added.

FedEx said on its earnings call on Thursday that the midpoint of its outlook range implies fourth-quarter adjusted profit per share of about $5.80, compared to analysts' average estimate of $5.85 per share, according to data compiled by LSEG.

Rising oil prices could still feed through to shipping costs in the coming weeks. FedEx, which operates the world's largest cargo air fleet by aircraft count, has said its fuel-surcharge mechanisms continue to absorb most of the impact, and that the Middle East accounts for a small part of its business.

However, the company has suspended most of its operations in the region and is re-routing shipments. And it has benefited from continued growth on Asia-Europe routes, where FedEx has redeployed capacity from Asia-U.S. lanes.

The company reported third-quarter results that topped analysts' expectations, driven by strength in its higher-margin, time-sensitive Express segment, where increased volume and stronger pricing helped deliver the most profitable peak season in its history.

"B2B activity has been rising at FedEx despite muted retailer restocking and a sluggish industrial sector — a unique dynamic compared with other transport companies," Morningstar analyst Matthew Young said.

Shares of FedEx have risen almost 25% so far in 2026, while those of rival UPS are down 2%. FedEx surpassed UPS in market value this month for the first time since its 1978 IPO, claiming the top spot.

FedEx trades at 19.88 times projected 12-month forward earnings, versus UPS at 14.61.

Shares of European peer Deutsche Post DHL Group DHLn.DE closed up 0.1% on Friday and UPS UPS.N fell 0.7%.

"We expect FedEx to continue to outperform the industry, and we expect Freight to improve profitability once it has passed the separation friction," analysts at Stifel said.

FedEx is in a multi-year restructuring that includes slashing billions of dollars in costs, combining its distinct Ground and Express delivery options, automating some operations and spinning off its Freight trucking business on June 1.

(Reporting by Rashika Singh, Abhinav Parmar, Anshuman Tripathy and Aishwarya Jain in Bengaluru; Editing by Krishna Chandra Eluri and Alan Barona)

((Rashika.Singh@thomsonreuters.com))