Earnings in the three months ending in May, FedEx’s fourth quarter, will be $1.75 to $2 a share, compared with $1.75 a year earlier, the Memphis, Tennessee-based company said today in a statement. Analysts estimated $1.98, the average of 22 projections compiled by Bloomberg.
FedEx is responding to a drop in express shipments and “below-trend” growth by parking an unspecified number of planes in the desert, reducing flight hours and reviewing domestic capacity. FedEx’s Express unit, its largest, posted a 4 percent drop in domestic volume while international priority shipments of small packages slid 1 percent.
“Domestic volumes in Express are fading, while international is holding its ground,” Peter Nesvold, an analyst at Jefferies & Co. in New York, wrote today in a note to clients. He said he had expected a “stronger” earnings outlook for the current quarter.
For the full fiscal year, FedEx forecast earnings of $6.35 to $6.60 a share, excluding gains from the reversal of a legal reserve at its express unit. Analysts estimated $6.36, the average of 25 projections compiled by Bloomberg.
“We just don’t have a strong economy as we had hoped it would be a year ago,” Chief Financial Officer Alan Graf said on an earnings call with analysts and investors. “The economic environment and the elasticity that we’re seeing on our premium services from the high-fuel costs are dampening the fourth quarter a bit.”
FedEx slid 3.7 percent to $92.26 at 10:54 a.m. in New York trading, after dropping as much as 4.2 percent for the biggest intraday decline since Dec. 19. The shares had gained 15 percent this year before today.
Earnings excluding certain items for the fiscal third quarter that ended in February were $1.55, FedEx said, which topped the $1.35 average projection in a Bloomberg survey.
Net income more than doubled to $521 million, or $1.65 a share, from $231 million, or 73 cents, a year earlier. Revenue rose 9.3 percent to $10.6 billion.
FedEx, an economic barometer because it delivers goods from mobile electronics to pharmaceuticals, predicts “moderate but low-trend growth to continue in the U.S. and globally,” Mike Glenn, executive vice president for market development, said on the call.
The U.S. economy may expand 2.1 percent this calendar year, and industrial production may increase 3.9 percent, he said.
FedEx will try to find savings in its domestic network, while also reducing flight hours and putting some aircraft in storage in the desert “until economic conditions improve,” Graf said. The company didn’t specify how many or what type of planes it is parking.
The effects of declining Express shipment volumes were mitigated by a 9 percent increase in domestic pricing, including higher per-pound rates and fuel surcharges.
Revenue per piece on international priority packages rose 5 percent, while international priority deliveries of small packages combined with large shipments rose only 2 percent.
The volume of packages through FedEx’s Ground network rose 5 percent, helped by home delivery and business-to-business shipments. SmartPost, in which FedEx uses the U.S. Postal Service for the final leg of shipments from customers such as catalog retailers, had a 13 percent jump in volume on gains in online shopping.
Freight rose 2 percent, helped by better weather compared with the year-ago quarter.