Shares of FedEx Corp. fell the most since December after posting quarterly earnings and sales Wednesday that missed analysts' estimates and signaling that profit would do so again in the current period.
"Significantly higher" accruals for cash-incentive compensation mean FedEx will earn less than the $2.67 a share analysts are expecting in the fiscal first quarter, Chief Financial Officer Alan Graf said on a conference call Wednesday.
The surprise expense for pay means FedEx is already under pressure as it starts a year projected to show only "continued moderate economic growth." Graf said he remains "very comfortable" with the full-year forecast of $10.60 to $11.10 a share.
"As with any management team, the usual excuse is, 'Don't worry, we'll make it up in the second half,'" said Logan Purk, an Edward D. Jones & Co. analyst. "But it depends on how the economy plays out. If they keep seeing a little bit of a slowdown, I wouldn't be shocked if earnings come in on the low end for the full year."
Analysts expected FedEx would earn $10.93 a share for fiscal 2016 before Wednesday's forecast.
FedEx shares fell $5.40, or 3 percent, to close Wednesday at $176.73.
FedEx executives assured analysts and investors that the shipping company will hit a three-year, $1.7 billion profit improvement plan by the end of this fiscal year, even if economic growth hasn't met projections that supported revenue increases in the plan.
"We've really been outstanding across the board on productivity and cost management," Graf said.
The program, begun in 2012, is primarily aimed at the airline business, FedEx Express, as customers shift to ground, freight and even ocean shipping over more-expensive overnight air deliveries. It included voluntary employee buyouts, job cuts and replacing older aircraft and vehicles with more fuel-efficient models.
"With the profit improvement initiative continuing to gain traction, we project much stronger profit growth in the second half," Graf said.
Fourth-quarter earnings excluding one-time items were $753 million, or $2.66 a share, short of the $2.69 average estimate in a Bloomberg survey. Sales of $12.1 billion also missed the $12.3 billion analysts expected. Sales fell in its biggest unit, FedEx Express, as the drop in oil prices over the past year translated into lower fuel surcharges and a stronger dollar crimped revenue from international exports.
The results excluded noncash charges of $4.88 a share related to a change in pension accounting, 62 cents for aircraft and engine retirements, 47 cents for a legal reserve increase and 15 cents for changes in how it reports segment results. Including the pension charges, FedEx reported a net loss in the fourth quarter of $895 million.
Chairman and Chief Executive Officer Fred Smith also got more leeway to stay on at the company he founded in 1971, with the board raising the mandatory retirement age for directors to 75 from 72, a step that would allow him to stay on longer if he chooses. Smith turns 71 in August.
Business on 06/18/2015