FedEx Earnings Slip on Higher Fuel Prices

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FedExFedEx Corp. (FDX) says slow-but-steady economic growth should produce strong earnings for the current quarter, although fuel prices and Mideast turmoil remain big uncertainties.

The world's second-largest package delivery company was upbeat about the fourth quarter and year ending in May, saying revenue should continue to improve and its freight unit should return to profitability after 6 money-losing quarters. Shares rose 5 percent.

FedEx issued the outlook on Thursday as it reported that third-quarter earnings fell 3 percent. Rising fuel prices and harsh winter weather offset a double-digit rise in revenue.

The company earned $231 million or 73 cents per share for the quarter that ended in February, compared with $239 million, or 76 cents per share a year earlier. Winter storms reduced net income by about 12 cents per share. Snow and storms hurt operations for about 27 days, or nearly a third of last quarter. Fuel prices went up 30 percent from a year ago. Maintenance costs rose 19 percent as the company flew more aircraft.

Revenue rose 11 percent to $9.66 billion, mostly due to better prices and heavier packages. Rising package weights are a fundamental sign of the improving economy, especially when those heavier packages are shipped through more expensive options like express or priority overnight. It indicates that consumers and businesses are being freer with their spending.

For the current quarter ending in May, the Memphis, Tenn. company is predicting a profit of $1.66 to $1.83 per share. Analysts currently predict $1.66. The company earned $1.33 per share in the quarter a year ago.

For the fiscal year, FedEx forecasts earnings of $4.49 to $4.66. Excluding costs related to the integration of its freight unit and legal costs, it expects adjusted earnings of $4.83 to $5. Analysts currently expect an annual profit of $4.89 per share.

Despite the strong forecast, FedEx warned that political turmoil in the Middle East and North Africa could hurt earnings. The tension there has already helped drive oil prices up 16 percent since the middle of February and an escalation could drive prices higher. It could also slow shipments and make deliveries more difficult.

The full impact of the earthquake and tsunami in Japan is unclear, but property damage was minimal, FedEx said. Japan is a major market for the company. Its business there is mostly comprised of exports including computer and car parts.

In the third quarter, Express unit revenue rose 11 percent from a year earlier. International priority freight pounds - the total weight of shipments - rose 21 percent, while revenue per pound rose 3 percent. International priority shipments are being driven by continued growth in emerging economies, especially Asia. Shipments include parts for computers, cell phones and other electronic gadgets.

Ground segment revenue improved the most of any unit, at 14 percent. The ground segment includes packages delivered by truck in the U.S.

FedEx shares rose $4.25, or 5 percent, to $89.53. Shares of UPS, the world's largest package delivery company, rose $1.67, or 2.4 percent to $72.05.

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