NEW YORK — FedEx Corp. on Thursday said strength in international shipments is driving profits, but it also announced plans to cut 1,700 jobs in an attempt to fix its money-losing U.S. trucking business.
The world’s second-largest package delivery company raised its financial outlook after its first-quarter net income doubled. But the projections for the second quarter and full year fell shy of Wall Street expectations.
International air shipments have driven FedEx’s results for more than a year, and international revenue rose 24 percent in the quarter ended Aug. 31. But the FedEx Freight segment lost money again as demand for large items such as refrigerators and other large appliances continues to be weak. As it competes with other trucking companies to ship a limited amount of freight, FedEx has been forced to forgo the rate increases that are helping its other segments grow.
FedEx earned $380 million in the first quarter, but the freight unit lost $16 million. The unit moves goods between businesses and competes with other large trucking companies such as Arkansas Best and YRC Worldwide, which runs trucks under the Yellow, Roadway and New Penn names. FedEx Freight, which was started in 2001, is separate from FedEx Ground,which trucks packages directly to consumers.
FedEx will combine its FedEx Freight and FedEx National less-than-truckload operations on Jan. 30 and close 100, or 20 percent, of its service centers. The 1,700 job cuts represent about 5 percent of the freight division’s employees. Overall, FedEx has about 280,000 employees.
FedEx says the move, along with other cost cuts, will ensure the trucking business is profitable next year. Less than-truckload shippers take goods from many different manufacturers and consolidate them into a single truck for delivery.
FedEx expects to earn between $1.15 and $1.35 per share for the quarter ending in November. Analysts were expecting $1.36 per share.
For the fiscal year that ends in May, FedEx forecasts net income at $4.80 to $5.25 per share. That’s up from a previous estimate of $4.60 to $5.20 per share. But some analysts had forecasts as high as $5.60 per share, according to Thomson Reuters.
“We expect a very solid peak season,” said Executive Vice President Mike Glenn, referring to the important Christmas shipping period. “It always gets a little cloudy after that.”
While retailers aren’t optimistic about Christmas shopping, FedEx has reason for optimism. FedEx benefits from online shopping, which has outpaced brick-and-mortar retail growth as more people order goods online. Also, retailers placed many Christmas orders in the spring when their outlook for consumer spending was brightening. They now fear they may have ordered too much - bad for them, but good for FedEx.
Memphis-based FedEx earned $1.20 per share in the fiscal first-quarter that ended in August, compared with 58 cents per share, or $181 million, a year ago. That’s slightly under the $1.21 per share that Wall Street expected. Revenue rose 18 percent to $9.46 billion.
As overall business has improved, costs have risen. The reinstatement of some employee compensation programs, higher pension, medical and aircraft maintenance expenses - as well as the loss at FedEx Freight - offset improvements at its Express and Ground operations. Operating income at the Ground division rose 37 percent to $287 million.
FedEx shares fell $3.22, or 3.8 percent, to close at $82.72.
Business, Pages 29 on 09/17/2010