FedEx sees 2014 profit gain up to 13% amid cost-cutting plan

FedEx Corp., the world’s largest cargo airline, sees full-year earnings rising as much as 13% as it reduces costs and jobs to counter customers’ preference for less expensive international shipping services.

Fourth-quarter earnings topped projections after margins improved at the freight division and volume rose in the ground segment. FedEx’s 2014 earnings growth prediction of 7% to 13% equates to a maximum of $7.04 a share, short of the $7.28 average of analysts’ estimates compiled by Bloomberg.

FedEx, an economic bellwether because of the variety of goods it ships worldwide, is parking older planes sooner than planned and cutting capacity to Asia to help trim $1.7 billion in costs as customers opt for cheaper deliveries. About 3,600 workers will leave under a voluntary buyout program, Memphis, Tennessee-based FedEx said.

“Our profit improvement program is progressing, but we continue to see the effects of customers selecting lower-rate international services,” Chief Financial Officer Alan Graf said today in a statement. “FedEx Express will further decrease capacity between Asia and the United States in July.”

FedEx rose 3.1% to $102.57 at 10:13 a.m. in New York. The shares had advanced 8.5% this year through yesterday compared with a 16% gain for the Standard & Poor’s 500 Index.

GDP Forecast

For fiscal 2014, the company projects gross domestic product growth of 2.3% for the U.S. and 2.7% for the world, FedEx said.

Net income fell 45% to $303 million, or 95 cents a share, in fiscal fourth quarter ended May 31, from $550 million, or $1.73, a year earlier. Excluding expenses related to company’s realignment program, earnings of $2.13 topped the $1.95 average estimate from analysts.

Sales rose 3.6% to $11.4 billion.

Volume for FedEx international priority shipments, its most expensive, fell 2% in the last quarter as lower-cost international economy rose 11%, according to the statement.

FedEx is speeding up plans to park 86 fuel-guzzling older planes and pull 308 engines from service as it slims FedEx Express, the company’s biggest unit and the one hit hardest as customers move away from expensive overnight shipments. That change is permanent and won’t reverse when economic expansion accelerates, FedEx has said.

The aircraft retirements are in addition to 24 planes FedEx Express said it would ground a year ago. The acceleration of groundings will result in a depreciation cost of $74 million, the company has said. FedEx is adding new aircraft that have similar or larger payload capacity and burn less fuel.

www.bloomberg.com

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