FedEx lowers full-year outlook

CHICAGO (Reuters) - FedEx Corp (FDX.N) reported on Thursday a higher quarterly profit despite a slowing U.S. economy, but lowered its full-year earnings outlook, sending its shares down more than 2 percent.

The package delivery company said net income rose to $494 million, or $1.58 a share, in its first fiscal quarter ended August 31, from $475 million, or $1.53 a share, a year earlier.

Wall Street analysts on average had expected earnings of $1.54 per share, according to Reuters Estimates.

"FedEx did a little better than we expected, but they have hit a bit of a soft spot and guided down," said Al Meyers, a portfolio manager and principal at Grand Rapids, Michigan-based AMBS Investment Council, a long-term holder of FedEx stock.

"They are a great operator, but how well they do depends on the how the U.S. economy performs," said Meyers, whose firm manages $650 million in assets and co-manages the $100 million AHA Diversified Equity Fund.

FedEx's quarterly sales rose 8 percent to $9.2 billion, above the $9.08 billion that analysts were expecting.

"FedEx appears to be executing well amid a challenging freight environment," R.W. Baird & Co. analyst Jon Langenfeld wrote in a research note. Baird maintained an "outperform" rating on FedEx stock.

"Outside of the United States, the economy is generally solid," Chief Executive Fred Smith said in a statement.

The Memphis, Tennessee-based company said it expected full-year earnings per share of $6.70 to $7.10, down from its outlook of $7 to $7.40 given in June. Analysts had forecast

$7.19.

"As a result of this weaker than anticipated economic environment, particularly its impact on the less-than-truckload freight market, we have reduced our earnings forecast by 4 percent for the full year," Chief Financial Officer Alan Graf said in a statement.

Less-than-truckload companies consolidate smaller loads into a single truck. The U.S. trucking market has seen weak freight volumes over the past year and faces a tough pricing environment as companies compete for business.

Like its main rival, Atlanta-based United Parcel Service Inc. (UPS.N), FedEx is seen as a bellwether of U.S. economic activity.

"Going forward we'll have to see whether the recent interest rate cut (of 50 basis points by the U.S. Federal Reserve) will provide some economic impetus," AMBS Investment Council's Meyers said.

FedEx said it expected second-quarter earnings per share of $1.60 to $1.75. Analysts had, on average, forecast $1.95.

"Looking forward it's going to be three or four quarters before the freight environment improves," said Keith Schoonmaker, an equity analyst at Morningstar. "In the meantime, FedEx seems to be doing the right things to manage international expansion and top line growth."

In a conference call with analysts FedEx officials said that as well as slower U.S. economic growth, rising fuel costs have also temporarily affected the company and will do so in the short term. Like other transport companies FedEx passes on fuel costs to customers via surcharges. However, there is a time lag after a spike in fuel costs before the surcharge takes effect.

For the first quarter, the company said revenue at its core FedEx Express delivery unit rose 4 percent to $5.89 billion.

Revenue rose 14 percent to $1.62 billion at the FedEx Ground delivery unit and jumped 22 percent to $1.23 billion at FedEx Freight.

The company said regional less-than-truckload shipments at FedEx Freight declined slightly due to slowing U.S. economic growth.

FedEx also announced that it was placing its struggling FedEx Kinko's unit in a new division called FedEx Services with its supply chain services operations. FedEx Services revenue declined slightly to $525 million from $527 million.

In late morning trade on the New York Stock Exchange, FedEx shares were down 2.5 percent or $2.64, to $104.87.