FedEx Corp. (FDX), the world’s largest cargo airline, sees full-year earnings rising as much as 13 percent as it reduces costs and jobs to counter customers’ preference for less expensive international shipping services.
The shares rose after fiscal fourth-quarter profit topped analysts’ estimates and Chief Executive Officer Fred Smith reassured investors on a conference call that the $98 billion international air cargo market is continuing to expand.
FedEx is parking older planes sooner and cutting capacity to Asia to help trim $1.7 billion in costs and sustain profit growth as revenue from its most-expensive international shipments declines. About 3,600 workers also are leaving the company under a voluntary buyout program, Memphis, Tennessee-based FedEx said today in a statement.
“With everything that’s going on in the world that they’re dealing with, they are still going to show growth in earnings with very little of the restructuring benefiting them this year,” Art Hatfield, an analyst with Raymond James & Associates Inc., said in an interview. “The company is doing what it needs to do to improve profit and returns.”
Hatfield, based in Memphis, has an outperform rating on the shares, the equivalent of a buy recommendation.
FedEx increased 1.1 percent to $100.54 at the close in New York. The shares have advanced 9.6 percent this year, compared with a 14 percent gain for the Standard & Poor’s 500 Index.
FedEx’s 2014 earnings growth prediction of 7 percent to 13 percent equates to a maximum of $7.04 a share, short of the $7.28 average of analysts’ estimates compiled by Bloomberg.
Net income in the quarter ended May 31 fell 45 percent to $303 million, or 95 cents a share, from $550 million, or $1.73, a year earlier. Excluding $376 million in expenses related to company’s realignment program, earnings of $2.13 topped the $1.95 average estimate from analysts. Sales (FDX) climbed 3.6 percent to $11.4 billion.
“These positive developments did not fully offset tepid economic growth and customer preference for less costly international shipping services,” Smith said in the statement.
Volume for FedEx Express international priority shipments, its most expensive, fell 2 percent in the fourth quarter as lower-cost international economy rose 11 percent.
“We still have a strong international priority business, but future growth for the next couple of years is going to be much higher in international economy,” Chief Financial Officer Alan Graf said on the conference call. “It’s not that we’re losing those international priority packages.”
FedEx said today it would further cut capacity to Asia in July, following a reduction announced in March, as it works to adjust its network to the shipping change.
The company is speeding up plans to park 86 fuel-guzzling older planes and pull 308 engines from service as it slims FedEx Express, the company’s biggest unit and the one hit hardest as customers move away from expensive overnight shipments.
“They’re parking their own planes because they’re going to put packages in a cheaper network,” Kevin Sterling, an analyst at BB&T Capital Markets who rates FedEx hold, said today in an interview. “They are saying they still have plenty of stuff to move, it’s just how they move it.”
The aircraft retirements are in addition to 24 planes FedEx Express said it would ground a year ago. FedEx is replacing the older aircraft with new planes that have similar or larger payload capacity and burn less fuel.
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