FedEx, considered a bellwether for the US economy because of the range of products it moves, cut its full-year profit forecast just three months into the company’s new fiscal year.
The company cited softer demand for some shipments that crisscross the US by truck and higher costs in its ground unit.
Earnings will be $10.40 to $10.90 per share before some costs, short of the company’s previous projection of $10.60 to $11.10. Profit for the quarter ended August 31st was $2.42 a share. That trailed the $2.45-a-share average of 25 estimates compiled by Bloomberg.
FedEx suffered in its first fiscal quarter as slower manufacturing and reduced global trade weighed on results. The more pessimistic outlook for the year reflects weakness in the energy sector, besieged by the plummeting price of oil, as well as lighter demand in the business that fills trucks with orders from multiple customers rather than just one.
FedEx said it found itself overstaffed in its ground unit when volume levels did not meet expectations in what normally is a busy quarter.
“It’s important to note that the LTL industry is very closely tied to industrial production,” said Mike Glenn, chief executive officer of FedEx Corporate Services, referring to the less-than-truckload business.
“When we see a 60 basis point drop in our industrial production forecast, it’s not surprising we’d see an impact on volume not only at FedEX but on the industry as a whole.”
First-quarter net income rose 13 per cent to $692 million, and revenue increased to $12.3 billion.
FedEx is in the final year of a three-year $1.7 billion cost-cutting programme primarily aimed at FedEx Express, the company’s airline business. Memphis, Tennessee-based FedEx initiated the effort, which included employee buyouts and retiring older planes and vehicles in favour of more fuel- efficient models, as shippers moved away from next-day deliveries. – (Bloomberg)
