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ATLANTA—FedEx Corp. , the world’s largest air-cargo
carrier, said quarterly profit fell for the first time
in three years and cut its earnings forecast for this
quarter because of a slowing US economy.
Net
income for the fiscal third quarter dropped to $420
million, or $1.35 a share, from $428 million, or $1.38,
a year earlier as winter storms damped shipping demand,
FedEx said last week in a statement. Revenue rose 7
percent to $8.59 billion.
FedEx
pared its outlook for the quarter ending May 31 by 5
cents a share and said it may miss its annual earnings
growth target of 10 percent to 15 percent. The US
economy grew at a 2.2-percent annual rate in 2006’s
final quarter, less than half the pace at the start of
the year.
“FedEx
operates a high fixed-cost business, so when there is a
slowdown on the revenue line, the incremental hit on
earnings can be disproportionate,’’ said James Gallop,
who manages $265 million including FedEx shares at
Scotsman Capital Management in New York.
Per-share earnings will be $1.93 to $2.08 in the May
quarter, down from a previous range of $1.98 to $2.13,
FedEx said. The fiscal fourth quarter is typically
strongest for the Memphis, Tennessee-based company,
chief financial officer Alan Graf said on a conference
call.
Slower
economic growth is particularly hurting results at
FedEx’s Express parcel delivery and freight trucking
units, the company said. FedEx said earnings growth this
year may fall short of the company’s 10-percent to
15-percent target unless the
US
economy accelerates.
Shares
of FedEx declined $1.30, or 1.1 percent, to $110.99 last
week in New York Stock Exchange composite trading. They
have gained 2.3 percent this year.
Analysts
expected FedEx to earn $1.33 a share, the average of 14
estimates compiled by Bloomberg.
Winter
storms reduced earnings by 6 cents a share in the three
months ended February 28, FedEx said, while a lower tax
rate boosted earnings by 8 cents a share. Gallop said
FedEx’s profit matched estimates, excluding the storm
and tax adjustments.
FedEx
hadn’t reported a lower year-over-year quarterly profit
since November 2003. The company projected on December
20 it would earn $1.20 to $1.35 a share last quarter.
Operating profit fell 12 percent at FedEx Express, which
makes up almost two-thirds of the company’s sales, as
economic weakness and bad weather curbed demand for
shipping, the company said. Earnings were also pared
when FedEx reduced the fuel surcharge it levies to
offset higher fuel expense.
“The US
economy grew at a lower rate than we expected in the
third quarter, and we saw continued adjustments in the
automotive and housing markets,’’ chief executive
officer Fred Smith said. FedEx economists expect US
companies to start rebuilding inventories late in the
year, propelling earnings back to more typical growth
rates, he said.
Smith is
expanding FedEx’s trucking, international and retail
businesses to give shippers more options than at rival
United Parcel Service Inc. and smaller trucking firms.
Revenue
at FedEx Ground, the company’s parcel delivery business
and second-largest unit, grew 12 percent to $1.5
billion. Operating profit rose 5 percent to $196
million.
FedEx
Freight, the third-largest unit by revenue, had a
32-percent decline in operating profit on slowing demand
and costs of integrating last year’s acquisition of
Watkins Motor Lines.
Revenue
increased 30 percent as the company picked up market
share, FedEx Freight president Doug Duncan said during
the conference call.
At FedEx
Kinko’s, the chain of printing and copying stores that
is the company’s smallest division, profit margin fell
for an eighth straight quarter, to 0.8 percent. FedEx
Kinko’s accounts for about 6 percent of FedEx revenue.
FedEx
plans to continue expanding the unit, “so I think it’s
going to be a few years before you’ll see us being able
to harvest from that investment,’’ Ken May, president of
FedEx Kinko’s, said during the conference call.
(Bloomberg) |
