* Q3 adjusted profit $1.23 per share vs est $1.38
* To cut capacity to and from Asia
* Sees 2013 adj profit $6.00-$6.20 per share vs est $6.31
* Shares fall more than 5 percent
By A. Ananthalakshmi
March 20 FedEx Corp cut its full-year
forecast after a worse-than-expected quarterly profit as
customers shift from air express to slower but cheaper modes of
The No. 2 U.S. package-delivery company said it would
step-up restructuring efforts, cut capacity in Asia and realign
its global aircraft network to cut costs and boost earnings.
Shares of the company, which has cut its full-year earnings
forecast twice in the last six months, fell more than 5 percent
in morning trading on the New York Stock Exchange on Wednesday.
The company's express unit, its biggest source of revenue,
has been hit as more cost-conscious international customers opt
to use container ships instead of costly overnight shipment by
air. Operating income in the express unit fell 66 percent in the
third-quarter ended Feb. 28.
FedEx said the express unit had underperformed largely due
to weakness in Asia and other international markets, where
margin pressures caused by excess capacity in the air freight
industry had more than offset increased volumes.
"We have a yield issue that exaggerated itself this quarter
over last quarter," Dave Bronczek, CEO of FedEx Express, said on
a conference call with analysts.
FedEx, the world's biggest air freight company, plans to cut
express capacity to and from Asia from April 1 and is looking at
reducing its fleet by retiring more of its older, less-efficient
aircraft, among other options to realign its network.
The actions, along with cost cuts, will help the express
unit perform better in the current quarter, Bronczek said.
"They have got to lower their costs because they are getting
paid a lot less for the packages they are shipping," said BB&T
Capital Markets analyst Kevin Sterling.
"It is hard for them to adjust quickly because we are
talking about planes which cannot just be parked in the garage
overnight," said Sterling, who doesn't expect margins to improve
for a few quarters.
Atlantic Equities analyst Rorrie Mars said FedEx's
cost-cutting plans would be enough to boost earnings but margins
would remain under pressure for the next couple of quarters.
FedEx, considered an economic bellwether because of the
massive volume of goods it moves, forecast fourth-quarter
adjusted earnings of $1.90 to $2.10 per share. Analysts on
average expect $2.07 per share.
The company now expects a profit of $6.00 to $6.20 per share
for fiscal 2013 ending May 31. It had earlier forecast $6.20 to
$6.60 per share. Analysts on average expect earnings of $6.31
per share, according to Thomson Reuters I/B/E/S.
"Our forecast calls for modest growth in the global
economy," Chief Executive Fred Smith said on the call. "The
calendar 2013 outlook certainly remains uncertain due mainly to
policy issues in the U.S., Europe and China."
Rival United Parcel Service Inc, which reported
quarterly results in January, forecast weaker-than-expected 2013
profit, citing an uneven global economy.
UPS has less exposure to international markets than FedEx,
Mars said. It also has more ground operations than air.
FedEx announced plans in October to improve profits by $1.7
billion over four years by cutting costs in the express unit.
FedEx said a number of its executives accepted voluntary
buyouts in early February, and that it had notified thousands
more of their eligibility for buyouts.
On Wednesday, the company said it had cut its estimate of
charges in fiscal 2013 resulting from the buyouts by $100
million, to $450 million to $550 million, mainly because of a
Third-quarter net income fell 31 percent to $361 million, or
$1.13 per share. Excluding items, FedEx earned $1.23 per share.
Revenue rose 4 percent to $11.0 billion. Analysts expected
earnings of $1.38 per share on revenue of $10.85 billion.
FedEx shares were trading at $100.53 at midday, down 5.6
percent. UPS shares were down 0.5 percent at $84.64.
Memphis, Tennessee-based FedEx's shares have gained about 18
percent since the beginning of the year. UPS's shares have risen
16 percent, compared with a 9 percent rise in the the S&P 500