FedEx Cuts Profit Forecast as Express Sales Slump on Economy
FedEx Corp. (FDX), operator of the world’s largest cargo airline, said quarterly earnings will fall short of its forecast after a weak global economy damped revenue from express shipments.
Profit for the quarter that ended Aug. 31 will range from $1.37 to $1.43 a share, Memphis, Tennessee-based FedEx said today in a statement. That was less than the June 19 projection of $1.45 to $1.60 a share, and the stock slid 3.5 percent to $84.50 at 5:21 p.m. after regular New York trading.
The cut in profit adds to evidence of how Europe’s economic slump and slowing growth in Asia are dragging on FedEx, which is seeking money-saving efforts such as buyouts for some employees. The company is considered an economic bellwether because it moves goods ranging from financial documents to pharmaceuticals.
“The global economy is weak and it’s impacting their business in the short run,” said Arthur Hatfield, a Raymond James & Associates Inc. analyst in Memphis. “I don’t think there’s anything inherently broken with their business.”
Analysts had predicted adjusted profit in the quarter would be $1.56 a share, based on the average of 23 estimates compiled by Bloomberg. They already had lowered their projections from earlier in the year. The average for the quarter was $1.70 a share prior to FedEx’s outlook statement in June.
Profit was $1.46 a share in the year-earlier quarter, FedEx said today. Additional information will be released in a quarterly earnings report on Sept. 18, according to FedEx, which said it hasn’t closed the books on the period.
The slowdown may add urgency to cost-cutting efforts that include a voluntary buyout program and the grounding of some older, less-efficient cargo planes.
Buyouts will be focused on staff employees at FedEx Express and FedEx Services, which operates combined sales, marketing, administrative and technology functions across other businesses. Shea Leordeanu, a spokeswoman, said last month that FedEx hadn’t decided how many workers will need to accept offers and expects to release more details at an Oct. 9-10 investor conference.
In June, FedEx said it was retiring 24 jet freighters and 43 older engines to better match shipping volumes. The company also has said it expects to retire 21 Boeing Co. (BA) 727s this fiscal year. Those planes will be replaced with Boeing 767-300 and 757-200 aircraft that are more fuel efficient and carry lower operating costs, FedEx said.
Restructuring the express business may remove $200 million to $900 million in costs, Hatfield said in an interview, citing analysts’ estimates.
That pullback is more significant for FedEx’s finances “in the short to medium term” than changes in earnings forecasts because of the economy, said Hatfield, who has a strong buy rating on the shares.
The company said in June that it expected U.S. economic growth of 2.2 percent for the fiscal year that ends May 31, down from a projection of 2.3 percent given in December 2011.
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