Jefferson City, MO 77° View Live Radar Fri H 85° L 67° Sat H 91° L 69° Sun H 94° L 70° Weather Sponsored By:

FedEx predicts slower earnings growth this year

FedEx predicts slower earnings growth this year

June 20th, 2012 by SAMANTHA BOMKAMP, AP Business Writer in News

NEW YORK (AP) - FedEx Corp. said Tuesday that slow global economic growth will crimp its earnings over the next 12 months. The company vowed to make significant cost cuts to counter any drop in package shipments.

The world's second-largest package delivery company is closely watched for signs about the health of the economy. It forecast moderate growth for both the U.S. and global economies, citing the debt crisis in Europe and slowing growth in Asia.

The company's results for the fourth quarter did top Wall Street estimates when a charge for retiring planes is excluded. Its stock rose nearly 3 percent.

The Memphis, Tenn. company's forecast for the first quarter fell below Wall Street's expectations, while its range for the year fell mostly below analysts' views. FedEx faces a number of speed bumps, including higher salaries and pension costs, as well a shift by customers to cheaper shipping options to save money. The company predicts fiscal year 2013 earnings of $6.90 to $7.40 per share. That excludes the major cost reductions it plans to announce in the fall. Wall Street analysts expect earnings of $7.39 per share.

In a note to clients, Jefferies analyst Peter Nesvold said that while the earnings forecast highlights a weakening global economy, higher costs are the main reason for it falling under Wall Street's expectations. He notes that a reorganization in FedEx's U.S. express unit, including possible job cuts, could boost earnings in the long run.

FedEx is calling for 2.2 percent economic growth in the U.S. for a calendar 2012 - higher than the 2.1 percent it predicted three months ago. It sees that rising to 2.4 percent next year, about in line with the current consensus of economists.

In the latest quarter, FedEx earned $550 million, or $1.73 per share, compared with $558 million, or $1.75 per share, a year earlier. Revenue rose to $11 billion from $10.55 billion a year ago. Without the charge to retire planes, FedEx earned $1.99 per share, 4 cents better than Wall Street estimates.

FedEx is getting rid of more aircraft to slim down its express network as more consumers opt for slower shipping services to save money. Operating income in that unit fell 34 percent including the one-time charge, or 3 percent without it.

FedEx earned 6 percent more per package in its U.S. unit despite a 5 percent decline in total shipments. It credited that to growth in its overnight service and higher customer charges for fuel. International priority shipment revenue rose 3 percent, while volume fell 3 percent as growth in Asia slowed.

FedEx shares rose $2.50 to close at $91.01 Tuesday.

FedEx's larger competitor, Atlanta-based United Parcel Service Inc., also cited slowing Asian shipments as it reported lower-than-expected first-quarter results in late April. Much of UPS' profit growth came from its core U.S. business, where revenue was up on higher volume and prices. But that was offset by a shift toward lighter packages and slower shipping methods.