FedEx issues conservative outlook for next fiscal year, despite improved 4th-qtr net income

Wednesday, June 16, 2010

FedEx issues conservative outlook, 4Q income up

NEW YORK — FedEx on Wednesday offered a conservative outlook for its new fiscal year even as strong exports from Asia led to healthy fourth-quarter results.

The forecast for earnings of $4.40 to $5 per share, falls short of analysts’ predictions of $5.05 per share. But it’s the first time the company has issued a full-year forecast since before the recession, indicating growing confidence in the long-term recovery of global trade.

The outlook also reflects expected higher costs as shipping volume picks up.

In a conference call with analysts, CEO Fred Smith said international growth is especially strong in India, China and Brazil. Smith said the company sees growth in those three fast-paced economies picking up steam over the next year — a trend he believes has been understated recently in economic forecasts.

“In my mind that very large trend of the emergence of these middle classes in India and China and Brazil that are now integrated into global trade is something that’s pretty profound,” he said. “People have an undue sense of pessimism relative to what’s actually happening out there in my opinion.”

FedEx said it’s also seeing double-digit growth in Europe, despite economic concerns there.

The Memphis, Tenn., company expects to earn 85 cents to $1.05 per share for the quarter ending in August. Analysts expect $1.03 per share.

Shares fell 2.7 percent in morning trading, down $2.23 to $80.78. The company has in recent quarters issued modest forecasts for future results.

In the quarter ended in May, FedEx earned $419 million, or $1.33 per share. It lost $876 million, or $2.82 per share a year earlier. Excluding a writedown on the value of assets and aircraft, earnings were 64 cents per share a year ago.

Revenue climbed 20 percent to $9.43 billion. FedEx took delivery of 18 planes in the fourth quarter. Six of those were Boeing 777Fs, which can fly from the company’s hub in Memphis to China without refueling.

FedEx said international express shipments jumped and its Ground division improved. The Ground segment grew steadily during the recession as people switched to slower shipping methods to save money and FedEx gained business as DHL retreated from the U.S. market.

The company’s weak point remains its freight segment, which has posted back-to-back losses. FedEx said the market still has too many trucks competing for a relatively small amount of freight, which is preventing it from raising prices. FedEx Freight CEO William Logue said the unit is aggressively reviewing the business. He didn’t provide a timeline for when it would become profitable.

FedEx’s fourth-quarter earnings were also affected by the reinstatement of merit raises and some 401(k) contributions it cut off during the recession.

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