I'd imagine it'll be a few lean years for both FedEx and UPS (not to mention pax airlines).
FedEx sees profit fall, glum forecast
03.20.08, 3:34 PM ET
http://www.forbes.com/markets/feeds/afx/2008/03/20/afx4799860.html
MEMPHIS, Tenn. (AP) -
FedEx Corp. reported a 6 percent drop in third-quarter earnings Thursday, saying a slow economy and high fuel prices are expected to continue cutting into profits.
The Memphis-based shipper predicted lower fourth-quarter earnings from a year ago, as well as 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,' Chief Executive 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 the international economy 'will continue to expand overall, albeit at a slower rate,' Smith said. 'And this will be fueled by the emerging markets.'
Company shares fell 2 cents, or 0.02 percent, to $86.21. Shares have traded in a range of $80 to $119.10 over the past 52 weeks.
'I'm not surprised they lowered their near-term outlook,' said Morgan Keegan analyst Art Hatfield. But it is a bit unusual, he said, for FedEx to begin talking about next year's expectations so early.
'Now keep this in mind. They haven't actually said what they expect to earn next year,' Hatfield said. 'All these comments could change radically in the next three or four months.'
The company is well managed, he said, and its troubles come from 'outside forces that are very difficult to control.'
FedEx and its larger rival,
United Parcel Service Inc. have both indicated they are counting on business overseas to help counteract stalled demand in the U.S.
UPS said last week that it might not meet first-quarter earnings predictions, due next month, because of the uncertain U.S. economy.
'We expect the weakness in parcel volumes at FedEx and UPS to continue for the next few quarters,' said JPMorgan analyst Thomas R. Wadewitz.
Peter Morici, a professor and economist at the University of Maryland, said the financial reports suggest a more dire future for the broader economy.
'The parcel carriers are a fantastic gauge of the U.S. economic outlook,' he said. 'The fact that they are forecasting future weakness further proves that we are in a recession and its duration is unknown.'
Morici said the high price of oil has compounded the troubles.
'What we have is a structural breakdown in the economy. We are truly navigating a region not yet on the map,' he said.
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, when earnings got a benefit of 8 cents a share from a tax-rate adjustment.
Revenue rose 10 percent to $9.44 billion, from $8.59 billion.
Analysts at Thomson Financial expected earnings of $1.22 a share on sales of $9.11 billion.
FedEx said package volumes for domestic express shipments declined 2 percent, while less-than-truckload shipments fell 3 percent.
Revenue at FedEx Ground, the company's main trucking unit, rose 13 percent, however, and sales at FedEx Express, the company's cargo airline, increased 11 percent overall, primarily because of growth in international express shipments.
Smith said FedEx is focused on managing costs and is depending heavily on its ongoing growth overseas.
FedEx predicted earnings in the fourth quarter of $1.60 to $1.80 a share, compared with $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.
Analysts forecast earnings of $6.31 a share this fiscal year and $7.11 a share in 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.'
AP Business Writer Samantha Bomkamp in New York contributed to this report.
Copyright 2008 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.