High oil prices blow to FedEx profit outlook
FedEx Corporation yesterday reported a higher-than-expected third-quarter net profit, but gave a low outlook for the current quarter citing soaring fuel prices and slowing US economic growth, sending the package delivery company’s shares down more than two per cent.
“Our fourth-quarter earnings outlook has been impacted by higher-than-anticipated fuel prices and a weak US economy,” chief financial officer Alan Graf said. “Looking ahead to our next fiscal year, we are expecting a continuation of fourth-quarter trends, which would result in limited earnings growth next year.
“We are scrutinising all expenses and investments to realign them with the current environment,” he added.
Al Meyers, portfolio manager for the AHA Diversified Equity Fund, said the results showed “the downward economic spiral continues.” “The question is whether in three months time whether we’ll see any improvement,” he said.
The Memphis-based company reported net income of $393 million, or $1.26 a share for its quarter ending last month, down almost seven per cent from $420m, or $1.35, a share a year earlier.
Wall Street analysts had on average expected earnings per share for the quarter of $1.23.
In a conference call with analysts, high oil prices were mentioned repeatedly as weighing on the company’s business.
Chief executive Fred Smith said he saw “little justification” for current price levels and said the high costs had led to some customers shifting “to lower-cost services.”
Revenue in the quarter rose 10pc to $9.44 billion from $8.59bn a year earlier. Analysts had expected revenue of $9.15bn.
FedEx said revenue at its express delivery unit FedEx Express rose to $6.13bn from $5.52bn, but continued softness in the US economy hurt margins.
FedEx’s less-than-truckload (LTL) unit FedEx Freight saw revenue rise to $1.16bn from $1.10bn, with a 3pc decline in shipments offset by higher freight rates.
LTL trucking companies consolidate smaller loads into a single truck.
Revenue at FedEx’s ground delivery unit FedEx Ground rose to $1.72bn from $1.52bn, but margins were hurt by intercompany charges and “costs to enhance and defend” its independent contractor model.
FedEx faces lawsuits in more than 30 states that claim the contractors should be classified as employees.
The Internal Revenue Service has also tentatively concluded that the 15,000 contractors at FedEx Ground should be reclassified as employees and that the company owes more than $319m in taxes and penalties for 2002.
In the earnings conference call, Graf said oil price volatility meant the company could miss that forecast “on either side.”
“I don’t have as much confidence (in that outlook) as I usually do, due to oil volatility,” he said.
Source: Gulf Daily News
Tags: FedEx, raising prices