FedEx profit lags Street view

SCHENECTADY, New York Thu Sep 16, 2010 1:31pm EDT

FedEx boxes are seen outside a delivery truck in New York in this March 18, 2010 file photo. REUTERS/Shannon Stapleton

FedEx boxes are seen outside a delivery truck in New York in this March 18, 2010 file photo.

Credit: Reuters/Shannon Stapleton

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SCHENECTADY, New York (Reuters) - FedEx Corp (FDX.N) forecast profit for the current quarter that missed expectations and its CEO warned that the economic recovery's pace may slow, pushing shares down more than 3 percent.

The company, seen as an economic bellwether because its planes and trucks ship a variety of merchandise around the world, has been on a strong growth footing in recent months, and on Thursday raised its profit forecast for its full 2011 fiscal year for the second time.

It also said its first-quarter profit more than doubled as business and consumer spending sparked more demand for its package delivery services

But CEO Fred Smith said he expects the pace of the world's economic recovery to slow in the months ahead.

"We expect a phase of somewhat slower economic growth going forward," Smith told analysts on a conference call. "Slower growth is consistent with historic business cycles.

The Memphis, Tennessee-based company forecast a second-quarter profit below Wall Street's expectations, and said some costs would rise this fiscal year as it resumes some employee benefit programs that it had halted during the worst of the recent recession.

"If you were looking for a catalyst that would boost things for the next month or two, you might be disappointed, and that's what we're seeing today," said Edward Jones analyst Matt Collins, referring to the decline in the share price.

Demand for air freight has surged as businesses -- particularly Asian electronics makers -- rely more heavily on overnight shipment of components, rather than keeping large inventories in warehouses, company officials said.

The company's freight segment, which handles bulk shipments, recorded an operating loss in the quarter, which contributed to the shares' declines, said Morningstar analyst Keith Schoonmaker.

"That that business continues to be a loss-maker," Schoonmaker said.

FedEx shares fell 3.8 percent to $82.65, and those of larger rival United Parcel Service Inc (UPS.N) fell 1.6 percent to $66.56 on a day the Standard & Poor's 500 index .SPX was down about 0.5 percent.

PROFIT SHY OF STREET VIEW

FedEx said profit in its fiscal first quarter that ended August 31 was $380 million, or $1.20 per share, compared with earnings of $181 million, or 58 cents per share, a year earlier.

Analysts, on average, had anticipated earnings of $1.21 per share, according to Thomson Reuters I/B/E/S.

Revenue rose 18.1 percent to $9.46 billion, topping the consensus Wall Street estimate of $9.42 billion.

FedEx raised its full-year profit forecast to $4.80 to $5.25 per share, excluding the cost of merging some ground operations.

It forecast second-quarter profit of $1.15 to $1.35 per share. Wall Street expected a profit of $1.36 per share.

But in a sign that it would continue to cut costs, the company said it plans to merge its FedEx Freight and FedEx National less-than-truckload operations on January 30, a move that will cost some $150 million to $200 million and eliminate 1,700 jobs during fiscal 2011, but will boost profits starting in fiscal 2012.

FedEx employs about 245,000 people worldwide, including staff and contractors.

The company said results for the year would be weighed by its resumption of matching its employees' contributions to their 401(k) retirement plans, beginning January 1. FedEx had suspended that program as a cost-cutting move during the downturn.

Uncertainty about where the economy is heading could be a boon for FedEx and UPS this year -- some major retailers are holding off orders ahead of the year-end U.S. holiday shopping season and may be forced to turn to air freight to keep their shelves stocked if demand proves to be stronger than they expected.

The company expects a "solid" holiday shipping season, CEO Smith said.

As of Wednesday's close, FedEx stock was up about 2 percent so far this year, outpacing the 0.5 percent rise of the Standard & Poor's 500 .SPX, but lagging UPS's 18 percent gain.

(Reporting by Scott Malone; Editing by Maureen Bavdek and Robert MacMillan)

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Comments (1)
blackghost wrote:
fedex another company looking to raise its profits through layoffs.something to remember next time you need to mail a package….

Sep 16, 2010 9:06am EDT  --  Report as abuse
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