FedEx cuts profit targets as earnings could fall 6%

FEDEX HAS lowered its fiscal 2013 profit target, saying earnings could slide as much as 6 per cent for the year, as a weakening world economy prompts customers to shift toward lower-priced and slower shipping options.

The world’s second-largest package delivery company said makers of electronics and mobile phones had begun to move more of their cargo on ships as pressure on their selling prices makes the cost of air freight harder to bear.

“A lot of traffic is moving on to the water because moving goods by air is very energy-intensive,” chief executive officer Fred Smith told investors on a conference call. “You can’t have jet fuel going up to close to $4 a gallon on occasion without it having a big effect on the choices people make.”

The company, based in Memphis, Tennessee, plans to take a “significant amount of cost” out of its express air freight operation, Mr Smith added. It would provide details at an October investor meeting, but it did not plan layoffs or “draconian steps”, he added.

Mr Smith founded the company in 1971 as an air shipper, but today it moves a large amount of goods by truck.

FedEx said it expected a profit of $6.20 to $6.60 a share for its fiscal year, which ends in May.

That is below both its prior forecast of $6.90 to $7.40 and Wall Street’s estimate of $7.03.

FedEx’s larger rival, United Parcel Service, had cut its 2012 profit forecast in July, but the midpoint of the revised range would still represent roughly 9 percent growth.

FedEx’s shares fell 1.7 per cent to $87.78 on the New York Stock Exchange.

Profit in the just-ended first quarter was heavily weighted by FedEx’s express segment, which handles overnight package delivery by aircraft. Operating earnings in the segment fell 28 per cent, while US package deliveries were down 5 per cent.

Most of that decline reflected the decision of one customer – a phone company that FedEx did not name – to shift from express shipments to ground, according to executive vice president Mike Glenn.

Such shifts were common in weak economic times, analysts said, when FedEx’s corporate customers were looking for ways to cut costs. – (Reuters)