FedEx Corp. (FDX) curbed its forecast for global economic growth, citing a recession in Europe and rising crude oil prices, as it projected a profit range this quarter whose low end trailed analysts’ estimates.
The shares fell the most since December after FedEx said express shipments declined both domestically and internationally because of “below-trend” growth. The operator of the world’s biggest cargo airline said it was parking an unspecified number of planes, paring flight hours and reviewing domestic capacity.
“We just don’t have a strong economy as we had hoped it would be a year ago,” Chief Financial Officer Alan Graf said on an earnings call. “The economic environment and the elasticity that we’re seeing on our premium services from the high-fuel costs” are weighing on this quarter’s earnings outlook.
FedEx is considered an economic bellwether because it carries everything from mobile devices to pharmaceuticals and financial documents. The Memphis, Tennessee-based company trimmed its estimate for global gross domestic product growth to 2.3 percent, from 2.9 percent in December.
Domestic shipments at the Express unit, FedEx’s largest business, fell 4 percent, while international priority shipments of small packages declined 1 percent.
“Clearly we’ve got some depressed volumes due to economic activity,” Mike Glenn, executive vice president for market development, said on the call.
Earnings in the three months ending in May, FedEx’s fourth quarter, will be $1.75 to $2 a share, compared with $1.75 a year earlier, the company said. Analysts estimated $1.98, the average of 22 projections compiled by Bloomberg.
“Fading” domestic volumes are partly to blame, Peter Nesvold, an analyst at Jefferies & Co. in New York, wrote today in a note to clients. He said he had expected a “stronger” earnings outlook for the current quarter.
For the full fiscal year, FedEx forecast earnings of $6.35 to $6.60 a share, excluding gains from the reversal of a legal reserve at its express unit. Analysts estimated $6.36, the average of 25 projections compiled by Bloomberg.
The U.S. economy may expand 2.1 percent this calendar year, Glenn said on the call. That’s below the 2.2 median forecast among 70 economists surveyed by Bloomberg.
Earnings excluding certain items for the fiscal third quarter that ended in February were $1.55 a share, FedEx said, which topped the $1.35 average projection in a Bloomberg survey.
Net income more than doubled to $521 million, or $1.65 a share, from $231 million, or 73 cents, a year earlier. Revenue rose 9.3 percent to $10.6 billion.
FedEx will try to find savings in its domestic network, while also reducing flight hours and putting some aircraft in storage “until economic conditions improve,” Graf said. The company didn’t specify how many or what type of planes it is parking.
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