FedEx Corp. (FDX) tumbled the most since September 2011 after lowering its 2013 earnings forecast and planning capacity cuts in Asia amid a widening customer shift to its cheaper overseas delivery services.
Profit in the fiscal year through May will be $6 to $6.20 a share, down from an earlier projection of as much as $6.60, the Memphis, Tennessee-based company said in a statement today. The forecast and fiscal third-quarter profit both trailed analysts’ estimates.
FedEx, an economic bellwether that moves goods as varied as medical supplies and auto parts, is in the midst of a $1.7 billion restructuring to compensate for customers moving away from its fastest, most expensive deliveries. FedEx, which said it’s making the Asia reductions after a $100 million drop in international revenue, is studying grounding some planes.
“The fact that shipper preferences are going toward cheaper transportation should not be a surprise,” said David Vernon, a Sanford C Bernstein & Co. analyst with a market perform rating on FedEx. “We’re hearing it from our contacts across the industry. The ultimate impact on the business was much worse than anybody had expected, us included.”
The operator of the world’s largest cargo airline fell 6.9 percent to $99.13 at 4 p.m. in New York, for the steepest drop since Sept. 22, 2011. Analysts had estimated that FedEx would post full-year profit of $6.35, the average in a Bloomberg survey.
The service changes in Asia are in addition to the restructuring already under way, the company said.
FedEx “got a little ahead of our skis” in putting capacity into the U.S.-Asia air freight market, Chief Executive Officer Fred Smith said on a conference call today. As customers moved away from overnight shipments to deferred deliveries, the company found itself carrying too many low-priced packages on expensive aircraft.
As a result, FedEx will reduce air capacity and push lower- yielding goods to cheaper shipping networks, such as ocean and ground, within the company, said Dave Rebholz, chief executive of FedEx Express.
Total “volumes are pretty healthy, but when you dial down and see where volumes are healthy, it’s on much lower-yielding freight,” Logan Purk, a St. Louis-based analyst at Edward Jones & Co. who has a buy rating on the shares, said in an interview. “When you look at yields, they’re compressing. That’s what’s biting FedEx.”
The company raised its forecast for U.S. economic expansion this calendar year to 2 percent from 1.9 percent previously, and said it expects growth next year of 2.5 percent. Global GDP will rise 2.3 percent this year and 3 percent in 2014, the company said.
The restructuring plan focuses on FedEx Express, the largest unit, where the company plans to generate $1.55 billion in cost cuts and profit improvement by trimming jobs, replacing older planes and cutting fuel-guzzling vehicles.
The company reduced by $100 million the estimated pre-tax cost of a voluntary employee buyout, in part because it’s not filling open positions. The expense now is estimated at $450 million to $550 million in fiscal 2013. Eligible workers will notify FedEx by April 1 whether they will accept offers.
Earnings this quarter will be $1.90 to $2.10, the company said, below an estimate of $2.12 from analysts surveyed by Bloomberg.
The fiscal fourth-quarter and full-year predictions exclude costs related to the restructuring. Including those expenses, profit will be 94 cents to $1.34 a share this quarter, and $4.91 to $5.31 for all of 2013.
In the fiscal third quarter, which ended in February, earnings excluding costs for the employee buyout program were $1.23 a share. That missed the $1.38-a-share average estimate of 25 analysts, according to data compiled by Bloomberg.
Including $47 million for the buyout and related restructuring expenses, net income was $361 million, or $1.13 a share, compared with $521 million, or $1.65, a year earlier, FedEx said.
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