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Tags: FedEx | profit | Target | earnings

FedEx Cuts 2013 Profit Target, Citing Weak Economy

Tuesday, 18 September 2012 08:00 AM EDT

FedEx Corp. lowered its fiscal 2013 profit target on Tuesday, saying earnings could slide as much as 6 percent for the year, as a weakening world economy prompts customers to shift toward lower-priced and slower shipping options.

The world's second-largest package delivery company said makers of electronics and mobile phones had begun to move more of their cargo on ships as pressure on their selling prices makes the cost of air freight harder to bear.

"A lot of traffic is moving onto the water because moving goods by air is very energy-intensive," Chief Executive Officer Fred Smith told investors on a conference call. "You can't have jet fuel going up to close to $4 a gallon on occasion without it having a big effect on the choices people make."

The Memphis, Tennessee-based company plans to take a "significant amount of cost" out of its express air freight operation, Smith said. It will provide details at an October investor meeting, but does not plan layoffs or "draconian steps," he added.

Smith founded the company in 1971 as an air shipper, but today it moves a large amount of goods by truck.

FedEx said it expected a profit of $6.20 to $6.60 per share for its fiscal year, which ends in May. That is below both its prior forecast of $6.90 to $7.40 and Wall Street's estimate of $7.03.

FedEx's larger rival, United Parcel Service Inc., had cut its 2012 profit forecast in July, but the midpoint of the revised range would still represent roughly 9 percent growth.

FedEx's shares fell 3.1 percent to close at $86.55 on the New York Stock Exchange.


Profit in the just-ended first quarter was heavily weighted by FedEx's express segment, which handles overnight package delivery by aircraft. Operating earnings in the segment fell 28 percent, and U.S. package deliveries were down 5 percent.

Most of that decline reflected the decision of one customer — a phone company that FedEx did not name — to shift from express shipments to ground, said Executive Vice President Mike Glenn.

Such shifts are common in weak economic times, when FedEx's corporate customers are looking for ways to cut costs, analysts said.

"The downward revision reflects what has been a very difficult macroeconomic environment in general and a specifically weak environment for air express services," said Robert W. Baird & Co. analyst Benjamin Hartford. "This has been ... more acute recently as corporations face decelerating growth and focus on managing costs."

Net income fell 1 percent to $459 million, or $1.45 per share, in the first quarter ended on August 31 from $464 million, or $1.46 per share, a year earlier.

That latest figure is well below the analysts' average estimate of $1.56 a share before the company's profit warning early this month, but above Wall Street's revised target of $1.40, according to Thomson Reuters I/B/E/S.

Revenue rose 3 percent to $10.79 billion.

FedEx said its average shipping rates would increase 3.9 percent in the United States starting January 7.

At Monday's close, FedEx shares had risen about 17 percent over the past 12 months, lagging the 20 percent climb of the broad Standard & Poor's 500 index but ahead of the 11 percent rise of UPS.

© 2023 Thomson/Reuters. All rights reserved.

FedEx Corp. cut its profit forecast for its fiscal year 2013 on Tuesday, saying that a weakening world economy had prompted customers to shift toward lower-priced and slower shipping options. The world's second-largest package delivery company said it now expects profit for...
Tuesday, 18 September 2012 08:00 AM
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