FedEx Corp. reported a 6 percent drop in third-quarter earnings Thursday due to high oil prices and a slow U.S. economy, and indicated it would miss Wall Street forecasts for the fourth quarter.
The shipping company said its fourth quarter earnings would fall from a year ago and said it expects only limited earnings growth for its next fiscal year.
“As we survey the current economic landscape, we expect limited earnings growth in (2009), given the current outlook for macro-economic conditions and fuel prices,” Chairman and CEO Frederick W. Smith told market analysts in a conference call.
“There is clearly stress in the housing and financial sectors and they create a drag on the overall U.S. economy, as well as the fuel prices,” Smith said, also noting an apparent softening in the labor market. “In calendar year 2008 we expect U.S. GDP to grow more slowly than in 2007.”
FedEx, which is often seen as a bellwether for the U.S. economy, expects that the international economy “will continue to expand overall, albeit at a slower rate,” Smith said. “And this will be fueled by the emerging markets.”
FedEx said it earned $393 million, or $1.26 a share, in the three months ended Feb. 29 versus $420 million, or $1.35 a share, for the same period last year. Revenue rose 10 percent to $9.44 billion, from $8.59 billion.
Analysts with Thomson Financial expected earnings of $1.22 a share on revenues of $9.11 billion.
“FedEx faces a challenging economic environment that includes persistently high oil prices, sluggish U.S. growth and continued concerns in the credit markets,” Frederick W. Smith, company chairman and chief executive officer, said in a statement. “We are managing our costs while positioning our portfolio of global transportation solutions to increase our profitability and returns once conditions improve.”
Average daily package volume for FedEx Express, the company’s cargo airline, and FedEx Ground, it’s trucking division, grew 5 percent, the earnings report said.
FedEx predicted earnings in the fourth quarter of $1.60 to $1.80 a share, compared to $1.96 for last year’s final period. Analysts were looking for earnings of $1.95 a share in the fourth quarter.
That outlook “assumes no additional increases to current fuel prices and no further weakening in the economy,” the report said.
FedEx expects “revenue growth to continue to be restrained across all segments for the remainder of 2008,” said chief financial officer Alan B. Graf Jr., adding that financial predictions are difficult in the current economy.
“I must say I don’t have as much confidence in this range as I normally do due to oil price volatility,” Graf said.
Analysts were looking for earnings of $6.31 a share for this fiscal year and $7.11 a share for fiscal 2009.
“Now the wild card going forward remains the price of fuel,” Smith said. “We are in uncharted territory when oil consistently sells for more than $100 a barrel.”
