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FEDEX
CORP., the second-largest US package-shipping company,
said fourth-quarter profit will miss its forecast after
surging fuel prices raised costs by at least $100
million more than estimated.
Earnings
will be $1.45 to $1.50 a share in the quarter ending May
31, compared with its previous target of $1.60 to $1.80,
FedEx said in a statement. The shares fell 3.3 percent
after the Memphis, Tennessee-based company said the
slower US economy is curbing express and freight
shipments.
Saturday’s forecast marked the second time FedEx pared
its outlook this fiscal year under the strain of the
rising price of oil, which set records each day this
week, and a possible
US
recession.
United
Parcel Service Inc. (UPS), the largest US shipper, last
month lowered its forecast, as well.
“This
was right about the same magnitude as UPS’s
announcement,” analyst Dan Ortwerth of Edward Jones &
Co. in
St. Louis
said in an interview. “The whole fuel situation is
really a moving target. Everybody’s all over the map on
what to expect.”
Analysts
had projected that FedEx would earn $1.71 a share, the
average of 14 estimates compiled by Bloomberg.
FedEx
dropped $2.96 to $87.41 after the close of regular New
York trading Friday. Earlier, the shares declined 3
percent to $90.37 in New York Stock Exchange composite
trading. UPS fell 1.2 percent after regular trading to
$69.41, following a 78-cent drop to $70.29 in composite
trading. Ortwerth rates FedEx and UPS as “buy.”
Lag in
surcharges
FedEx
and UPS typically have a two-month lag in recovering
fuel expenses through surcharges. In early May, FedEx
boosted its surcharge on express shipments to 25
percent, from 20 percent.
“While
we have dynamic fuel surcharges in place, they cannot
keep pace in the short term with rapidly rising fuel
prices,” chief financial officer Alan Graf said in the
statement.
The new
outlook assumes no additional increases in fuel prices
and no further weakening of the economy, FedEx said.
Economists anticipate the economy will grow at a
0.1-percent annual rate from April to June, the least
since the 2001 recession, according to a monthly survey
by Bloomberg News published Friday. Gross domestic
product rose at a 0.6-percent pace in the first quarter
and 2007’s final three months.
Record
prices
Jet fuel
for immediate delivery in
New York
Harbor reached a record $3.83 a gallon Friday and has
risen 35 percent this year. Diesel increased 25 percent
this year to a record $4.27 as of May 8, according to
AAA.
Fuel is
FedEx’s second-largest cost, after labor. In the third
quarter, the company’s fuel expense rose 42 percent to
$1.18 billion.
FedEx in
November changed the earnings forecast for its fiscal
second-quarter and full-year earnings, lowering both.
The company declined to provide the number of times it
has reduced its profit outlook in its history, spokesman
Jess Bunn said.
The
company was founded in 1971 by chairman and chief
executive officer Fred Smith. FedEx controls about 30
percent of the US package market, according to SJ
Consulting Group Inc. (Bloomberg) |
