FedEx Cuts Outlook As Lower Air Freight Hits Profit

FedEx Cuts Outlook As Lower Air Freight Hits Profit
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FedEx Corporation (NYSE:FDX) has slashed its full-year forecast owing to less than expected quarterly earnings resulting from the shift by customers from air express to slower but cheaper modes of international shipping, as reported by Reuters.

FedEx Cuts Outlook As Lower Air Freight Hits Profit

FedEx Corporation (NYSE:FDX) is considered as an economic bellwether owing to the massive volume of goods it moves. The company expects fourth-quarter adjusted earnings of $1.90 to $2.10 per share against the analyst expectations of $2.07 per share. For fiscal 2013 ending May 31, the company expects a profit of $6.00 to $6.20 per share against the earlier forecasts of $6.20 to $6.60 per share. According to Thomson Reuters I/B/E/S, analyst expects earnings of $6.31 per share.

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Similar to FedEx, rival United Parcel Service have earlier forecast weaker-than-expected 2013 profit owing to uncertain global economy.

The overcapacity prevailing in the industry has adversely affected the company’s biggest source of revenue, FedEx Corporation (NYSE:FDX)’s express unit. This has resulted in the squeezed margins with operating income declining by 66 percent. The No. 2 U.S. package-delivery company told that the weakness in Asia and other international markets resulted in the less the expected performance of the express unit. Margin pressures due to excess capacity more than compensated the gains from increased volumes.

“We have a yield issue that exaggerated itself this quarter over last quarter,” Dave Bronczek, CEO of FedEx Express, said on a conference call with analysts.

To turn things around, the package-delivery company plans to reduce the express capacity to and from Asia from April 1 and could possibly opt for overhauling of its fleet by retiring more of its older, less-efficient aircraft. The actions and the cost cuts will help the company to fare well in the fourth quarter, Bronczek said.

In October last year, FedEx announced a plan to improve the profits by $1.7 billion over four years by saving on costs in the express unit. The company told that a number of its executives have opted for voluntary buyouts in early February, and it had informed the thousands more eligible executives for buyouts.

For the third quarter, FedEx reported a 31 percent fall in income to $361 million, or $1.13 per share, however, excluding certain items FedEx earned $1.23 per share. Revenue for the quarter improved by 4 percent to $11.0 billion.

According to an analyst from BB&T Capital Markets, FedEx will have to lower its cost as it is paid less for the packages they are shipping. On New York Stock Exchange, the shares of FedEx Corporation (NYSE:FDX) lost 5 percent in the early trading session.

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