FedEx cuts 2Q, full-year outlook
NASHVILLE, Tenn. (AP) - FedEx Corp. reduced its quarterly and
yearly earnings expectations Friday and analysts suggested that forecasts could
be pared for future periods if fuel prices don't stabilize.
The Memphis-based shipper blamed soaring fuel costs and a troubled U.S. freight market for the reduced estimate that led the company's shares to plunge 4.5 percent and set a 52-week low on Friday.
Alan B. Graf Jr., FedEx's chief financial officer, said in a release that the company's fuel surcharge system can't react quickly enough to cover rapid fuel price increases. He said fuel costs have risen more than 8 percent, or $85 million, since September.
Jet fuel prices have risen about 30 percent over the same period, Robert W. Baird analyst John Langenfeld said in a note to investors. "We see further risk to estimates if fuel levels do not stabilize," he said.
FedEx previously reduced its full-year outlook in September on worries about economic uncertainty from the downturn in the housing market.
"However, the lower annual guidance points to a more pessimistic outlook by the company, as fuel volatility tends to adjust over time, something that is not reflected in today's announcement," he said.
FedEx's less-than-truckload freight trends have been weak, "despite economic signs that the decline in U.S. industrial production has hit bottom," Graf said.
The company is reviewing ways to cut expenses and is evaluating its capital investment plans, he said.
FedEx said it expects to earn $1.45 to $1.55 per share in the second quarter, compared with a previous forecast of $1.60 to $1.75 per share. For the fiscal year ending in May, the company forecast earnings of $6.40 to $6.70 per share, down from a prior range of $6.70 to $7.10 per share.
Analysts polled by Thomson Financial had expected the company to earn $1.71 per share for the quarter and $6.87 per share for the year.
Dan Ortwerth, an analyst with Edward Jones, said he will continue to recommend investors take a long-term view.
"For us the decision is that this company is doing everything it needs to do to deliver long-term returns," he said. "This is just a rough patch."
FedEx shares fell $4.57, or 4.5 percent, to $96.80 Friday, after sinking to a 52-week low of $96.10 earlier. Shares of rival shipper United Parcel Service Inc. closed down $1.09, or 1.5 percent, to $72.01.
FedEx said in late October the increase affects its air shipping rates within the U.S. and for export in 2008. It said its rates are expected to go up for ground shipping in the U.S. as well.