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ATLANTA—FedEx Corp. said profit fell for the
second-straight quarter and would decline in the current
period as soaring fuel costs and an economy teetering on
the brink of recession reduced demand for US package
shipping.
Net
income in the third quarter sank 6.4 percent to $393
million, or $1.26 a share, from $420 million, or $1.35,
a year earlier, Memphis, Tennessee-based FedEx said
Saturday in a statement.
FedEx’s
slide added to signs that the US is slipping into its
first recession in seven years. The second-largest US
package-shipping company is struggling with a 42-percent
jump in costs to fuel its jets and trucks, and a drop in
demand for express deliveries, its top revenue source.
“FedEx
could pull every single lever they have and they’re
still going to feel pain and margins are going to
contract,” said Daniel Ortwerth, a St. Louis-based
analyst at Edward Jones & Co., who recommends the stock.
“Nobody knows what to expect of the economy or the
credit markets.”
FedEx
said fourth-quarter earnings will be $1.60 to $1.80 a
share, lower than the $1.94 expected by analysts in a
Bloomberg survey. The forecast assumes no further
fuel-price increases and no more weakness in the
economy, chief financial officer Alan Graf said on a
conference call with investors and analysts.
FedEx
rose 79 cents to $87.02 at 4:15 p.m. in New York Stock
Exchange composite trading. The shares have dropped 23
percent in the past year.
“I don’t
have as much confidence in this range as I normally do
because of fuel volatility,” Graf said. “We are in areas
of very high elasticity.”
Lower
demand for express package shipments in the US will
continue into fiscal 2009, which “would result in
limited earnings growth next year,” Graf said.
Stifel
Nicolaus and Co. analyst John Larkin lowered his
estimate of FedEx earnings through 2011, and reduced his
12-month share price target 15 percent to $105.
Sales
for the quarter that ended February 29 rose 10 percent
to $9.44 billion, and profit exceeded analysts’
estimates by 2 cents a share. Operating margins fell on
higher fuel costs and a 2-percent drop in domestic
volume at FedEx Express, which accounts for 65 percent
of the company’s revenue.
FedEx
boosted fuel surcharges to 20 percent for April, and may
increase them for May if fuel prices rise, Graf said.
That is prompting some customers to “rethink” their
shipping needs and seek less expensive options, he said.
FedEx’s
total fuel bill surged 42 percent to $1.18 billion for
the third quarter.
Fuel
prices are hurting “the total economic activity that is
driven by the shippers who may not have as many packages
to ship globally and domestically,” Satish Jindel,
president of Sewickley, Pennsylvania-based SJ
Consulting, said in a Bloomberg Television interview.
United
Parcel Service Inc., the world’s largest
package-delivery company, said last week that it may not
meet its first-quarter earnings target. Domestic
shipments have dropped for six straight weeks because of
the cooling US economy, the Atlanta-based company said.
FedEx’s
Graf said the company will perform “impairment testing,”
an accounting review of an asset’s value, on its FedEx
Kinko’s office supply and copy centers in the fourth
quarter. FedEx bought Kinko’s for $2.4 billion four
years ago to compete with UPS Stores.
“Investors frown on these things, it means you paid too
much for that company,” Art Hatfield, a Memphis,
Tennessee-based analyst at Morgan Keegan Inc., said in a
Bloomberg Radio interview. Hatfield rates FedEx shares
“outperform.”
FedEx
said Saturday it will slow expansion of the FedEx
Kinko’s chain to about 70 new locations in the coming
fiscal year, down from the 300 it’s opening this year.
The unit’s president, Ken May, resigned earlier this
month.
FedEx’s
profit slipped 6 percent in the second quarter, the
first decline in three periods, as the slowing economy
cut demand for freight shipments. (Bloomberg) |
