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High fuel costs drag down FedEx 2Q earnings

Package delivery company FedEx Corp. said its fiscal second-quarter earnings fell 6 percent, as the impact of high fuel costs and a weakening U.S. economy overshadowed global growth.
/ Source: The Associated Press

Package courier FedEx Corp. reported Thursday its second-quarter profit fell 6 percent from a year ago, largely due to high fuel costs, lower demand for freight shipments and an overall sluggish U.S. economy.

The delivery company's growth overseas tempered the effects of the domestic economic slowdown and helped FedEx meet its lowered earnings expectations for the quarter. But it forecast profit for the current quarter that was below Wall Street estimates.

Its shares fell $1.41 to $93.22 in morning trading Thursday.

FedEx earned $479 million, or $1.54 a share, for the three months ended Nov. 30 compared with $511 million, or $1.64 a share, a year ago.

The company lowered its expected earnings for the second quarter last month to a range of $1.45 to $1.55, down from an earlier estimate of $1.60 to $1.75. Analysts surveyed by Thomson Financial expected earnings of $1.50 per share.

Revenue rose 6 percent to $9.45 billion from $8.93 billion last year. Analysts were expecting revenues of $9.32 billion.

"High fuel prices and weak U.S. economic growth year-over-year have impacted our business," said Frederick W. Smith, FedEx chairman, president and chief executive.

"We continue to benefit from solid international growth, which helps mitigate softness in U.S. industrial production," Smith said. "While we see challenging near-term economic trends, we remain confident about long-term prospects in all our business segments."

He said FedEx is well positioned to take advantage of "macro-economic trends" driving a "global trading system for the movement of goods like we carry."

"The most important of that is you now have, in the form of the Internet, a very low-cost standardized visual medium where people can sell and source goods without regard to time or place," he said in a conference call with analysts.

The outlook for the U.S. economy remains poor, but "we don't think that the United States is going to see an economic meltdown," Smith said. "We don't think there is going to be strong growth in the U.S. economy and that's what our forecast is built around."

For the third quarter, the company expects to earn $1.15 to $1.30 per share, compared with $1.35 per share a year ago. Analysts polled by Thomson Financial expect a profit of $1.37 per share.

The company reaffirmed its outlook for the fiscal year, predicting earnings of $6.40 to $6.70 a share.

Less-than-truckload shipments for the company's FedEx Freight segment fell 6 percent from the same period last year due to the overall economic slowdown, FedEx said.

Internal troubles with its contract drivers, as well as higher fuel costs, cut into operating income for FedEx Ground, the company's trucking division, FedEx said.

FedEx is defending itself against legal challenges from contract drivers around the country who argue they should be company employees with full employee benefits. The company is also reorganizing its ground system in California, where single-route drivers are switching to multiple routes.

"FedEx Ground faces increased regulatory and legal uncertainty with respect to its independent contractors," the company said.