FedEx Disappoints with Earnings Miss and Guidance Cut

Andrew Klips  |

Package delivery company FedEx Corp. (FDX) dropped-off a soggy box on shareholders’ front porches on Wednesday morning with less-than-expected profits from the third quarter ended February 28, 2013 as the company warned about a continued slowdown in Asia.  FedEx said the quarter was also challenging because customers shifted to “less expensive and slower-transit services.”

For the quarter, the Memphis, Tennessee-based company reported that revenue increased 4 percent to $11.0 billion from $10.6 billion in the third quarter last year.  Operating income fell by 28 percent to $589 million from $813 million in the year prior quarter.  Net income dropped by 31 percent, totaling $361 million, or $1.13 per share, compared to $521 million, or $1.65 per share, in the year earlier period.  Non-GAAP income, which excludes expenses from voluntary buyouts of U.S. employees and other one-time charges, was $1.23 per share, versus $1.55 per share a year earlier.

Wall Street was expecting FedEx to report EPS of $1.38 on revenue of $10.85 billion.

In February, FedEx offered thousands of employees, including officer and managing directors buyout packages – mostly in the company’s Express and Services arms.  By May 2014, FedEx expects to spend about $450 to $550 million in buyouts to cut its workforce by about 10 percent in an effort to curtail costs.

"In response, beginning April 1, FedEx Express will decrease capacity to and from Asia and will aggressively manage traffic flows to place low yielding traffic in lower-cost networks.  We are currently assessing how these actions may allow FedEx Express to retire more of its older, less-efficient aircraft,” said Frederick W. Smith, FedEx Corp. chairman, president and chief executive officer at FedEx.

International revenue for the recent quarter missed FedEx prior guidance by about $100 million as consumers find cheaper ways to ship overseas, a trend that the company said they expect to continue.  The trend may result in the company grounding some aircraft at least temporarily in a bid to improve profits, which could lead to asset impairment charges in the future.

FedEx Ground and FedEx Freight, the two cornerstone operations of the company, both modestly improved on results for the quarter.  Revenue at FedEx Ground was up 11 percent to $2.75 billion, although operating income was essentially flat at $467 million.  FedEx Freight posted a tepid increase in revenue to $1.24 billion and operating revenue of $4 million, compared to a loss of $1 million in the year prior period.

Looking ahead, FedEx cut its guidance for the current quarter and full fiscal 2013 year.  It now sees adjusted earnings of $1.90 to $2.10 per share for the quarter.  For all of 2013, the company expects adjusted earnings in the range of $6.00 to $6.20 per share.

Analysts were expecting earnings of $2.12 per share for the fourth quarter.

Shares of FDX, which have been on a steady climb since mid-November (from lows of $84.90 per share) are tumbling today with the weak earnings and guidance cut.  At the lunch break shares are off by nearly 6 percent around $100 each.

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