FedEx cautious in 3Q forecast, reporting fiscal 2Q results fell 30 percent

FedEx issues cautious 3Q forecast

NEW YORK — FedEx offered a tepid outlook Thursday for the quarter that ends in February, after reporting fiscal second-quarter results fell 30 percent from a year ago.

Although the package delivery company expects a modest economic recovery to continue next year, FedEx said “there is some uncertainty regarding the sustainability of current demand trends after our peak shipping season.” The company, based in Memphis, Tenn., predicts earnings of 50 to 70 cents per share in the third quarter, well under analysts’ expectations of 84 cents per share.

But despite the cautious near-term forecast, the company sees many economic indicators turning positive. CEO Fred Smith said in a conference call that he believes the U.S. economy “reached a turning point” during the company’s second fiscal quarter, which went from September to November. Smith noted industrial demand turned positive compared with last year and manufacturers started buying again.

FedEx sees strong demand from Asia and Latin America and predicts better results for the second half of the fiscal year ending in May. It forecast full-year earnings above what most Wall Street analysts expect. FedEx sees profit of between $3.45 and $3.75 per share, compared with the average analyst estimate of $3.46.

Outlooks from FedEx and larger rival UPS are considered indicators of how the broader economy is faring, since they carry many products and packages for businesses and consumers. UPS reported lower third-quarter profit and revenue in October.

FedEx is adding more flight hours to meet international demand in the current quarter, which will increase its costs. The Company cut flight hours during the September-to-November quarter by 6 percent as it used more fewer and more fuel-efficient airplanes. But as package volume started picking up in the quarter, especially in Asia and Latin America, the company scheduled more flights.

FedEx Express President and CEO Dave Bronczek said the company is “having a hard time keeping up” with the improving volume out of those regions.

The company also will resume merit salary increases in 2010 and half of the 401(k) company match for most U.S. workers. The program was suspended a year ago at the height of the economic collapse.

In the September-to-November period, FedEx Corp. earned $345 million, or $1.10 per share, compared with $493 million, or $1.58 per share a year earlier. The results matched an announcement last week, when FedEx said earnings for the quarter would be higher than expected. Revenue fell 10 percent to nearly $8.6 billion.

Thomson Reuters says analysts expected profit of $1.06 per share on revenue of $8.46 billion.

FedEx reported double-digit sales declines in major segments including Express, Freight and Services. But revenue in the company’s Ground segment, in most cases the least-expensive shipping option, rose 3 percent mostly because of added volume from a partnership with the U.S. Postal Service and DHL’s exit from the U.S. market.

FedEx shares fell $4.57, or 5.1 percent, to $85.39 in morning trading.

(This version CORRECTS quarter end month in lead to February.)