FedEx Forecast Trails Estimates; 1,700 Jobs to Be Cut
FedEx Corp., the second-largest U.S. package-shipping company, forecast earnings for the current quarter that fell short of analysts’ estimates, and said it will eliminate 1,700 jobs.
Net income for the three months ending in November will be $1.15 to $1.35 a share, the Memphis, Tennessee-based company said today in a statement. Analysts projected $1.37 a share, the average of 19 forecasts compiled by Bloomberg.
FedEx fell 3.8 percent in New York trading as results indicate an uneven global recovery, with U.S. shipments trailing growth in more-profitable international express packages. FedEx and United Parcel Service Inc. are considered economic bellwethers because they deliver goods ranging from industrial parts to pharmaceuticals and financial documents.
“We expect a phase of somewhat slower economic growth going forward,” Chief Executive Officer Fred Smith said on a conference call with analysts. “Slower growth is consistent with historical business cycles.”
FedEx slid $3.22 to $82.72 at 4 p.m. in New York Stock Exchange composite trading. Earlier, it fell as much as 4.8 percent, the most since June 29. The shares have increased less than 1 percent this year, in line with the Standard & Poor’s 500 Index.
The company said it will eliminate jobs and close about 100 facilities as it combines freight and less-than-truckload operations starting in January. Most of the closings are transfer stations and warehouse space FedEx acquired when it bought Watkins Motor Lines in 2006.
Combining Freight Lines
Combining the freight operations will cost $150 million to $200 million and “substantially” improve profitability for the freight unit in fiscal 2012, the company said. The 1,700 job cuts represent less than 1 percent of the company’s global workforce.
Full-year adjusted earnings per share will be in a range of $4.80 to $5.25, FedEx said. Analysts estimated $5.21.
Net income for the three months ended Aug. 31 was $380 million, or $1.20 a share, which fell short of the average $1.21 estimate of 19 analyst projections in a Bloomberg survey. Net income more than doubled from the year-earlier $181 million, or 58 cents a share. Revenue rose 18 percent to $9.46 billion.
The results for the three months ended Aug. 31 and reduced forecast for the current quarter are “viewed as a disappointment relative to rising expectations,” Jon Langenfeld, an analyst at Robert W. Baird & Co. in Milwaukee, wrote in a report. He recommends holding the shares.
FedEx posted a 19 percent jump in international priority packages, which are its most profitable offerings, while U.S. domestic package volumes increased 2.7 percent.
The company said in April 2009 it was eliminating 1,000 jobs under a plan to save $1 billion as the recession crimped sales, following the Feb. 1, 2009, suspension of matching contributions to 401(k) retirement plans. FedEx had also reduced merit salary increases for some U.S. employees. The company reinstated 401(k) matches this year.