FedEx Maintains Full-Year Forecast Amid Economic Concerns

FedEx Corp. (FDX), operator of the world’s largest cargo airline, maintained its full-year profit forecast amid increasing concern that U.S. economic growth may slow.

The shares rose, as broader market indexes declined, after Memphis, Tennessee-based FedEx re-affirmed its fiscal 2013 earnings outlook of $6.20 to $6.60 a share, excluding costs associated with a voluntary buyout program.

FedEx, an economic bellwether because it moves goods as varied as pharmaceuticals, financial documents and electronics, beat fiscal second-quarter sales estimates while struggling with falling profit at its express division. That drop is caused in part by customers’ long-term shift to cheaper shipping options.

“It was a pretty impressive quarter, especially given the economy,” said Logan Purk, an Edward Jones & Co. analyst in St. Louis, who recommends buying the shares. “Something else the market likes is that in this sluggish environment they came out and maintained their guidance” for full-year profit.

FedEx increased 0.9 percent to $93.20 at the close in New York, while United Parcel Service Inc. (UPS), the world’s largest package-delivery company, gained 0.7 percent to $75.61. The Standard & Poor’s 500 Index and the Dow Jones Industrial Average both fell as federal budget talks deteriorated, stoking concern that the lack of an agreement will hurt the economy.

Photographer: Andrew Harrer/Bloomberg

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Photographer: Andrew Harrer/Bloomberg

FedEx is an economic bellwether because it moves goods as varied as pharmaceuticals, financial documents and electronics.

Fiscal Cliff

The standoff between President Barack Obama’s administration and congressional Republicans over more than $600 billion in federal tax increases and spending cuts has been causing concern at companies ranging from Ford Motor Co. to Wal- Mart Stores Inc. Failure to reach an accord would trigger higher taxes and reduced government spending starting in January.

“The mounting uncertainty in the U.S. related to fiscal policies and their potential to impact earnings by further restraining economic growth is a concern,” Chief Financial Officer Alan Graf said in a statement today.

Earnings will fall to $1.25 to $1.45 a share in the third quarter ending in February, FedEx also said. The range’s top end matched the average analyst estimate.

FedEx reiterated its forecast for 1.9 percent U.S. GDP growth in calendar 2013, and lowered the global outlook to 2.5 percent. The company reduced to 2.4 percent its outlook for U.S. industrial production growth on Superstorm Sandy, and forecast 2.5 percent worldwide.

“I just want to emphasize that calendar year 2013 outlook could swing either direction depending upon policy outcomes, especially with the fiscal cliff issues in the U.S. and certainly issues in Europe,” Mike Glenn, chief executive officer of FedEx Services, said on a conference call with analysts and investors.

Buyout Program

FedEx in October announced a $1.7 billion effort to reduce costs and improve earnings. About $1.55 billion of the work will involve FedEx Express. The company will record a charge of $550 million to $650 million, or $1.09 to $1.29 a share, in the fiscal fourth quarter related to the voluntary buyout program, expected to be accepted by “thousands” of workers.

“We expect to begin realizing the benefits of these programs in fiscal year 2014 and anticipate these savings will be substantially realized by the end of fiscal 2015,” Graf said on the call.

Quarterly Profit

Net income in the second quarter ended Nov. 30 fell 12 percent to $438 million, or $1.39 a share, from $497 million, or $1.57, a year earlier, FedEx said. The profit, which included 11 cents in costs related to Sandy, trailed the $1.41 average analyst estimate compiled by Bloomberg.

Sales rose 4.9 percent to $11.1 billion, topping the $10.8 billion average estimate. Operating income for FedEx Express, the largest segment, fell 33 percent to $230 million from $342 million, while revenue increased 4.2 percent to $6.86 billion.

The 3 percent gain in international priority shipments, FedEx’s most expensive offering, was in line with Hatfield’s projection, showing that growth in that segment remains anemic.

“It’s consistent with what we thought given the economy,” Art Hatfield, an analyst at Raymond James & Associates Inc. in Memphis, Tennessee, said today in a telephone interview. He rates the shares outperform.

FedEx also said it agreed to buy four additional Boeing Co. (BA) 767-300 freighters, bringing to 50 the number it has on order. Deliveries are to begin in fiscal 2014.

The shipping company also postponed deliveries of two Boeing 777 freighters to fiscal 2016 from fiscal 2015 “in order to better match capacity timing to global demand.”

FedEx said it handled a record 19.8 million packages on Dec. 17, surpassing the 19 million it had forecast to be its peak on Dec. 10. The company expects volume over the full holiday shipping period to be up more than 13 percent from last year, as several big customers are seeing record sales, said Dave Rebholz, CEO of FedEx Ground.

To contact the reporter on this story: Mary Schlangenstein in Dallas at maryc.s@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net *FDX US <Equity> FDX US <Equity> BA US <Equity> UPS US <Equity> P US <Equity>

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