FedEx Falls After Profit Forecast Narrowed on Economic SlumpJulie Johnsson and Mary Schlangenstein
FedEx Corp. fell after the world’s largest cargo airline trimmed the top range of its full-year profit forecast and pared its projection for global economic growth.
Earnings will be $8.80 to $8.95 a share in the fiscal year ending May 31, the Memphis, Tennessee-based company said in a statement Wednesday. FedEx had reiterated a forecast of $8.50 to $9 a share on Jan. 23. Analysts estimated $8.98 on average.
“We expect the guidance to be viewed negatively as expectations were towards the high end of the prior range,” Helane Becker, a New York-based analyst with Cowen & Co., said in a note to clients. She rates FedEx shares the equivalent of a buy.
FedEx predicted global economic expansion of 2.8 percent for 2015, less than the company’s Dec. 17 outlook for a 3 percent gain. A stronger dollar than a year earlier and higher employee bonuses are also weighing on results the current, fourth quarter, according to the company, whose shipments of goods as diverse as financial documents, clothing and electronics make it a bellwether.
The shares fell 1.4 percent to $173.30 at the close of trading in New York.
FedEx is in the middle of a $1.7 billion cost-cutting program begun in 2012, primarily aimed at FedEx Express, which is the company’s airline business. Third-quarter revenue of $6.66 billion at the unit, the company’s largest, decreased slightly from a year earlier as lower fuel surcharges and the currency impact trimmed the benefits of higher volume growth.
“What’s underappreciated on FedEx is that people believe they can make a big improvement in profitability by turning Express around,” Kelly Dougherty, a Macquarie Capital USA Inc. analyst in New York, said before results were announced. “If they do that and keep capex relatively constant, they’re going to generate a lot of free cash flow. That’s not something they’ve done before.”
Third-quarter earnings of $2.01 a share topped the $1.88 average of 23 analyst estimates compiled by Bloomberg. The results for the period, which included peak volumes for holiday packages, contrasted with those of United Parcel Service Inc., whose quarterly profit trailed analysts’ estimates. UPS is the world’s biggest delivery company, with a larger ground operation than FedEx’s.
“We expect continued revenue and earnings growth this year, driven by ongoing improvements in all of our transportation segments,” Chief Financial Officer Alan Graf said in the statement. “We expect to deliver record fourth quarter and fiscal year earnings.”
The stock has outperformed UPS and other industrial companies in the Standard & Poor’s 500 Index this year. FedEx’s 1.2 percent gain this year through Tuesday topped a 10 percent drop for Atlanta-based UPS and a 0.7 percent decline for the S&P 500 Industrials Index.
Cheaper fuel prices are providing a tailwind for transportation companies, although a rebound from January’s low prices will temper revenues FedEx gains through a fuel surcharge during the fourth quarter, Becker said.
Crude on the New York Mercantile Exchange averaged 46 percent less in the three months ended on Feb. 28 than a year earlier. Jet kerosene dropped 40 percent.