FedEx Earnings Grounded, Forecast Cut

FedEx Corporation logo
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FedEx Corp. (NYSE: FDX) reported fiscal third quarter 2013 results before markets opened this morning. The package delivery service reported adjusted diluted earnings per share (EPS) of $1.23 on revenues of $11 billion. In the same period a year ago, FedEx reported EPS of $1.55 on revenue of $10.6 billion. This morning’s results also compare to the Thomson Reuters consensus estimates for EPS of $1.38 and $10.86 billion in revenue.

On a GAAP basis, EPS totaled $1.13, which excludes employee buyout costs. A year ago the company’s GAAP EPS totaled $1.65, which included a $0.10 benefit.

As a bellwether for the economy, FedEx’s predictive power points to a slowdown. The company’s CEO said:

The third quarter was very challenging due to continued weakness in international air freight markets, pressure on yields due to industry overcapacity and customers selecting less expensive and slower-transit services. In response, beginning April 1, FedEx Express will decrease capacity to and from Asia and will aggressively manage traffic flows to place low yielding traffic in lower-cost networks. We are currently assessing how these actions may allow FedEx Express to retire more of its older, less-efficient aircraft. We remain focused on our strategic cost reduction programs, which are ramping up and on track.

The company saved the worst news for its fourth-quarter outlook. FedEx forecast quarterly EPS at $1.90 to $2.10 and full-year EPS at $6.00 to $6.20. The consensus estimates called for quarterly EPS of $2.13 and full-year EPS of $6.35. The high end of FedEx’s forecast was the low end at the end of the second quarter.

On a GAAP basis, the voluntary employee buyout program is expected to cost the company as much as $1.09 in EPS in the fourth quarter and as much as $5.31 for the full year. The quarterly cost is actually lower than the company forecast at the end of last quarter. FedEx also lowered its capital spending forecast from $3.9 billion to $3.6 billion

FedEx said that third-quarter international revenues were about $100 million below previous guidance because customers chose lower-yielding international services with lower rates per pound and lower weight per shipment. The CFO said, “We expect these trends to continue.”

Shares are down more than 3% in premarket trading this morning, at $103.00 in a 52-week range of $83.80 to $109.66. Thomson Reuters had a consensus analyst price target of around $112.80 before today’s results were announced.