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FedEx profit falls on weak airfreight business

FedEx profit falls on weak airfreight business

March 20th, 2013 by DAVID KOENIG, AP Business Writer in News

DALLAS (AP) - FedEx said Wednesday that third-quarter profit fell 31 percent as customers shifted to slower and less-expensive international air-shipping options, and it cut its forecast of full-year earnings.

The company says it will cut capacity to and from Asia starting next month and might retire some of its older airplanes.

FedEx shares fell $7.33, or 6.9 percent, to close at $99.13 Wednesday.

FedEx Corp. said its net income fell to $361 million, or $1.13 per share, in the three months ended Feb. 28. That's down from $521 million, or $1.65 per share, a year earlier.

Excluding costs of voluntary buyouts for some U.S. employees, the company says it would have earned $1.23 per share.

Revenue rose 4 percent to $11 billion.

Analysts were looking for $1.38 per share and revenue of $10.9 billion, according to FactSet.

The company's fiscal year ends in May. It expects adjusted earnings between $1.90 and $2.10 per share in its fourth quarter and $6 to $6.20 per share for the year. That is below analysts' forecasts of $2.12 and $6.35 per share, respectively.

Memphis-based FedEx is the world's second-biggest package-delivery company. It's seen as a gauge of the overall economy because so many consumers and a range of businesses use its shipping services.

Chairman and CEO Frederick W. Smith said the company's fiscal third quarter, which ended Feb. 28, was "very challenging" due to weakness in the global air freight business and customers picking slower, less-expensive ways to ship packages.

Smith said the company will respond by cutting capacity to Asia and directing less profitable shipments into "lower-cost networks." He said the company was studying whether the moves will let it retire older, less-efficient planes.

Executives said that the problem with the international airfreight business wasn't a lack of volume, but rather a faster-than-expected shift among customers from fast, premium service to cheaper delivery options.

"Our planes coming out of Asia were full - full of the wrong type of product," said David Bronczek, CEO of the company's Express business.

Taking their cue from the company, some analysts lowered their forecasts for future earnings. Jim Corridore of Standard & Poor's lowered his predictions for this year and next year but said the shares were still a value and would rise on good economic news.

Cowen Securities analyst Helane Becker said the air freight business "continues to bounce along a bottom" but results at FedEx's Express unit shouldn't get any worse as the company takes steps to fix it.

FedEx plans to cut annual costs $1.7 billion by 2016 with buyouts that will reduce its workforce by at least 10 percent by May 2014. The company said Wednesday that it will spend $450 million to $550 million in cash on the buyouts during the fiscal year ending in May, with "some additional costs" in the following 12 months.

FedEx lowered its capital-spending plan for the current year to $3.6 billion from $3.9 billion.