FedEx Says Economy Isn’t as Robust as it Hoped
NEW YORK (AP) - FedEx says the global economy isn’t growing as strongly as expected and customers are reacting by choosing cheaper means of shipping packages.
The world’s second-largest package delivery company is predicting a slower pace of growth this year for the U.S. and abroad than most economists.
Chief Financial Officer Alan Graf said the current economic environment and higher fuel prices are driving more customers to "trade down" or choose slower methods of shipping to save money, just like they did during the recession.
Its stock, which is close to a year-high, fell about 3 percent.
The comments on a conference call with analysts overshadowed a strong third quarter driven by holiday sales. Online holiday sales helped drive FedEx’s profit between December and February to more than double what it was a year earlier.
Higher prices from rate increases and surcharges that cover the rising cost also drove results. That was most notable in the ground segment that delivers packages by truck to consumers and businesses.
In its fiscal third quarter, FedEx earned $521 million or $1.65 per share, compared with $231 million, or 73 cents per share, a year earlier.
The company had record holiday package shipments. FedEx gains when more people shop online for the holidays. It also benefits when recipients return those ill-fitting sweaters or unwanted presents.
Excluding one-time items, FedEx earned $1.55 per share compared with 81 cents per share a year ago. The results beat both analysts’ and the company’s own expectations.
Revenue rose 9 percent to $10.56 billion.
Sales at FedEx’s express segment, its largest, rose 8 percent to $6.54 billion. That was mostly due to higher prices and heavier packages in the U.S.
FedEx’s ground segment results were boosted by its home delivery services, which include directing packages between residential customers and major retailers. The segment’s revenue growth of 14 percent was the most at any of FedEx’s businesses.
The company’s freight segment reported a fourth straight profitable quarter. It ships bigger items like refrigerators and cars and was hardest hit during the recession. Its revenue rose 10 percent in the latest quarter.
FedEx narrowed its forecast for the fiscal year ending in May. It now expects to earn $6.43 to $6.68 per share compared with between $6.25 and $6.75 per share previously. Analysts, on average, predict $6.39.
FedEx Chairman and CEO Fred Smith declined to comment on rival UPS’ planned $6.77 billion purchase of Dutch parcel TNT Express. But he inferred his company won’t make a competing bid.
"I’m extremely pleased with our operations (in Europe) and we feel confident in our plans to continue the expansion through organic growth," he said.