FedEx keeps full-year forecast amid economic growth concerns

FedEx Corp., operator of the world’s largest cargo airline, maintained its full-year profit forecast amid increasing concern that the U.S. economic growth may slow.

The shares rose in early trading after the Memphis, Tennessee-based company re-affirmed its fiscal 2013 profit forecast of $6.20 to $6.60 a share, excluding costs associated with a voluntary buyout program. Profit will fall to $1.25 to $1.45 a share in the third quarter ending in February, FedEx said in a statement today. Analysts predicted $1.45 on average.

“The mounting uncertainty in the U.S. related to fiscal policies and their potential to impact earnings by further restraining economic growth is a concern,” Chief Financial Officer Alan Graf said in the statement.

FedEx, an economic bellwether because it moves goods as varied as pharmaceuticals, financial documents and electronics, is struggling with falling profit at its express division, in part because of a continuing move by customers to cheaper shipping options.

“They’re just in a difficult spot right now with where the world is and people shifting more and more to deferred instead of express,” Art Hatfield, an analyst at Raymond James & Associates Inc. in Memphis, Tennessee, said today in a telephone interview. He rates the shares outperform.

The shares rose 1.1 percent to $93.36 at 9:25 a.m. New York time before the markets opened. They had gained 11 percent this year through yesterday, while the Standard & Poor’s 500 Index advanced 15 percent.

Fiscal Cliff

The standoff between President Barack Obama’s administration and congressional Republicans over more than $600 billion in federal tax increases and spending cuts has been causing concern at companies ranging from Ford Motor Co. to Wal- Mart Stores Inc. to Pandora Media Inc. Failure to reach an agreement would trigger higher taxes and reduced government spending beginning in January.

Profit in the second quarter ended Nov. 30 fell 12 percent to $438 million, or $1.39 a share, from $497 million, or $1.57, a year earlier, FedEx said. The profit, which included 11 cents in costs related to superstorm Sandy, trailed the $1.41 average estimate of analyst predictions compiled by Bloomberg.

Sales rose 4.9 percent to $11.1 billion, topping the average estimates of $10.8 billion. Operating income for FedEx Express, the largest segment, fell 33 percent to $230 million from $342 million, while sales rose 4.2 percent to $6.86 billion.

Anemic Growth

The 3 percent gain in international priority shipments, FedEx’s most expensive offering, was in line with Hatfield’s projection, showing that growth in that segment remains anemic.

“It’s consistent with what we thought given the economy,” Hatfield said.

FedEx also said it agreed to buy four additional Boeing Co. 767-300 freighters, bringing to 50 the number it has on order. Deliveries are to begin in fiscal 2014.

The shipping company also postponed deliveries of two Boeing 777 freighters to fiscal 2016 from fiscal 2015 “in order to better match capacity timing to global demand.”

FedEx in October announced a $1.7 billion effort to reduce costs and improve earnings. About $1.55 billion of the work will involve FedEx Express. The company will record a charge of $550 million to $650 million, or $1.09 to $1.29 a share, in the fiscal fourth quarter related to the voluntary buyout program, expected to be offered to “thousands” of workers.

Bloomberg News

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