News Column

FedEx Reports Earnings and Lowers Outlook, Citing Slow Global Economy

Sept. 18, 2012

Wayne Risher


Upcoming launches of iPhone 5 and other technology products aren't moving the needle in FedEx Corp.'s profit forecast for the next nine months.

FedEx officials on Tuesday downgraded the forecast through June 30, 2013 and indicated new product launches were factored in long ago.

FedEx economists aren't expecting the U.S. and world economies to expand as fast as predicted three months ago, citing weaker consumer demand in Europe and North America, in turn fueling a slowdown in China's exports.

"The global trading economy is still the largest single economy in the world, but over the past several months ... it's been disappointing," said chairman, president and CEO Frederick W. Smith. He said the new product launches are "not going to provide the sort of sustained growth in international trade that the world has seen historically."

FedEx handles launches of high-value technology products by adding extra flights, rather than increasing scheduled service, Smith said, and has been planning for these episodical events for a couple years.

In addition to the iPhone 5 coming out Friday, Apple reportedly plans to come out with a smaller iPad by year's end, Microsoft is due to release a new tablet Oct. 26 and Amazon is releasing multiple Kindle readers and tablets.

FedEx sliced its full year forecast to $6.20 to $6.60 a share, from previous guidance of $6.90 to $7.40 a share. The forecast assumes the current market outlook for fuel prices and doesn't consider the impact of cost reduction programs currently under review.

The reduced expectations came as the company announced earnings of $1.45 a share for the June-August quarter and said it would increase FedEx Express rates a net average 3.9 percent effective Jan. 7. Quarterly earnings a year ago were $1.46 a share.

The results were in line with what the company said in a pre-earnings release two weeks ago.

Michael Glenn, executive vice president, market development and corporate communications, said, "We continue to see modest growth in the global economy."

Glenn said FedEx economists had slightly reduced growth forecasts, seeing U.S. gross domestic product increasing 2.2 percent this year, 1.9 percent in 2013; U.S. industrial production at 4.2 percent this year, 3 percent next year; and global GDP going up 2.3 percent this year, 2.7 percent next year.

"As we announced on Sept. 4, weakness in the global economy constrained revenue growth at FedEx Express during our first quarter and affected our earnings," Smith said.

"Meanwhile, our FedEx Ground and FedEx Freight segments performed well, with both improving year-over-year operating margins," Smith said. "We are taking further actions to reduce costs and adjust our networks to match current and anticipated shipment volumes."

Smith and others alluded to an ongoing plan to reduce costs and increase profit margins in U.S. domestic express business. They told analysts to stay tuned for full details at an investors and lenders conference scheduled Oct. 9 and 10 in Memphis.

Voluntary buyouts for targeted employee groups and aircraft fleet modernization are among the measures outlined so far.

Smith told analysts the program will take "huge amounts of money out of our Express network."

Source: (c)2012 The Commercial Appeal (Memphis, Tenn.). Distributed by MCT Information Services

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