FedEx profit rises but misses forecast

A FedEx Corp. employee prepares to load a container onto a FedEx plane at Los Angeles International Airport in this file photo. The company said shipments dropped off this winter because snow and ice closed some retail shippers in the East and Midwest.
A FedEx Corp. employee prepares to load a container onto a FedEx plane at Los Angeles International Airport in this file photo. The company said shipments dropped off this winter because snow and ice closed some retail shippers in the East and Midwest.

DALLAS - FedEx Corp. said Wednesday that its latest quarterly profit rose 5 percent from a year ago despite storms that raised the company’s costs, but the results were below analysts’ expectations.

The company’s ground shipping segment is doing better, but the express-delivery business is flat and customers continue to shift to slower, cheaper services for international shipments.

“The impact from multiple severe storms and frigid temperatures was significantly more pronounced this year,” Chief Financial Officer Alan Graf said in a statement.

The package-delivery company said net income in the quarter that ended Feb. 28 rose to $378 million, or $1.23 per share, from $361 million, or $1.13 per share, a year ago. Analysts surveyed by FactSet expected $1.45 per share.

Revenue rose 3 percent to $11.30 billion from $11 billion, missing Wall Street’s forecast of $11.43 billion.

The weak results drove Fed-Ex to lower its forecast of full year earnings. However, FedEx expects fiscal fourth-quarter earnings of between $2.25 and $2.50 per share, which leaves room to beat analysts’ prediction of $2.34 per share.

FedEx said that weather reduced operating income by $125 million in the December-to-February third quarter. Snow, ice and freezing weather slowed the company’s trucks and planes and raised costs on numerous fronts, from de-icing to overtime. Shipments dropped off during storms because some retail shippers in the East and Midwest closed.

Rival United Parcel Service Co. struggled to keep up with peak volumes just before Christmas - traffic was heavier and later in the season than UPS expected.

FedEx Chairman and Chief Executive Officer Fred Smith said that his company handled December loads but will be careful in managing residential e-commerce shipments.

“The biggest challenge is the fact that so much of the business comes in such a short period of time, and obviously it is not possible to make these enormous capital investments for two or three weeks out of the year,” Smith said during a conference call with analysts. “You can clearly go broke trying to deliver noncompensatory packages into people’s homes.”

Customers are limiting spending on higher-priced services. FedEx said that it was continuing to see a shift toward less profitable international services - the volume of international economy-class shipments rose 8 percent.

The Memphis-based company is still buying back its own stock, which reduced the number of shares by 3 percent from a year ago and increased its earnings per share.

Helane Becker, an analyst at Cowen and Co., said that investors would “give the company some slack” for the disappointing third quarter because of the slightly upbeat forecast for the May quarter and FedEx’s moves to increase profit in its big express operations.

FedEx shares fell 19 cents to close Wednesday at $138.38 after rising 56 cents during the trading session. They began the day down 3.6 percent for this year after gaining 57 percent in 2013.

“We believe the investment community will give the company some slack in terms of the lower-than-expected results as weather is clearly out of the company’s hands,” Helane Becker, an analyst at Cowen & Co., wrote in a note to clients.

Information for this article was contributed by Mary Schlangenstein of Bloomberg News.

Business, Pages 32 on 03/20/2014

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