FedEx lowers fiscal third quarter earnings guidance
February 15, 2011
Citing severe winter storms and higher-than-expected fuel prices FedEx said this week that it’s projected fiscal third quarter earnings have been impacted by roughly $0.25 per share.
FedEx officials said this downgrade results in third quarter earnings—not including FedEx Freight combination costs—expected to come in at $0.70-to-$0.90 per diluted share compared to previous guidance of $0.95-to-$1.15 per diluted share. They added that this guidance assumes no further weather impact and stable fuel prices for the rest of the quarter and that it will impact earnings guidance for the full year.
Third quarter earnings will be announced on March 17.
“We experienced significant network disruptions in the U.S. and Europe and unusually high costs from severe winter storms. In addition, fuel prices continued to escalate since we provided our earnings outlook in December,” said Alan B. Graf, Jr., FedEx Corp. executive vice president and chief financial officer, in a statement. “We continue to see strength in our base business across all transportation segments and geographies. I would like to take this opportunity to thank all our team members for their hard work and dedication during the recent severe weather events.”
This news follows FedEx’ fiscal second quarter release in December in which net income dropped 18 percent to $283 million. Quarterly revenue of $9.63 billion was up 12 percent from $8.6 billion a year ago, and operating income at $469 million was down 18 percent from $571 million. FedEx reported earnings per share of $0.89, which fell short of last year’s $1.10 and of Wall Street estimates of $1.31 per share.
Company officials said that net income was down, due to costs pertaining to the company’s September announcement regarding the meshing of its FedEx Freight and FedEx National LTL operations, a reserve associated with a legal matter at FedEx Express, the reinstatement of certain employee compensation programs, and higher pension and higher aircraft maintenance expenses.
“Strong demand for FedEx transportation, outstanding customer service…and a healthier global economy combined to drive revenue higher,” said FedEx Chairman, President, and CEO Frederick W. Smith on a conference call. “We are relentlessly focused on improving our yield; our strategy is fast gaining traction. Yields and volumes increased significantly year-over-year in our transportation segments during the second quarter.”
Despite FedEx lowering its quarterly guidance, the feedback from Wall Street analysts suggested that things will recover for the company fairly quickly.
Chris Ceraso, an analyst at Credit Suisse First Boston, wrote in a research note that weather conditions will get better and fuel prices will stabilize, allowing the company’s fuel surcharge mechanism to catch up to spot prices.
And Robert W. Baird analyst John Langenfeld explained that FedEx continues to see strength across all of its businesses, with a solid outlook across all geographies it is active in.
“Improving demand results in recent quarters reflect an improving global freight environment with demand across the business segments improving,” wrote Langenfeld. “Importantly, pricing discipline is evident across all divisions, providing the potential for much stronger peak earnings. Expense pressure remains a headwind through F11 as costs reenter the business to support growth (i.e., benefits, plane maintenance, incentive compensation), but we expect to see significantly improved F12 operating leverage as costs normalize.”
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